Compliance can present significant challenges to merchants throughout all aspects of business operations. Whether it be obligations surrounding user data storage, or developing frictionless customer channels, there is much to consider. Network tokenisation may offer a solution to alleviate many merchant concerns.
Fréderic Frizzarin is the head of UK GSV pre-sales and merchant services at Worldline, the payment and transactional services company. He boasts over 20 years’ experience in the IT and telecoms industry and also spent over 10 years working in payments at Ingenico.
Here, he explores the benefits of network tokenisation, how it could be used to protect consumers against bad actors, as well as how it can alleviate compliance concerns for merchants.
Card-not-present (CNP) transactions have become ubiquitous in the evolving digital economy. However, these transactions are accompanied by the constant threat of payment card fraud and data breaches.
Despite these challenges, a robust solution has emerged: network tokenisation. This innovative technology underpins digital commerce transactions by guaranteeing the security of shared and stored data. It accomplishes this by substituting sensitive Primary Account Numbers (PANs) with highly secure identifiers known as tokens.
Major card schemes like Visa, Mastercard, and American Express issue tokens in network tokenisation, whereas in PCI tokenisation, acquirers or payment service providers handle token issuance. This distinction allows network tokens to operate seamlessly across the entire payment ecosystem, thereby offering a wider range of applications.
In this article, we delve into the intricate world of network tokenisation. Initially designed for the CNP environment, this payment technology extends its utility beyond initial expectations. We will, therefore, examine its functionality, the benefits it offers, its indispensable role in ensuring compliance with the Payment Card Industry Data Security Standard (PCI DSS), and its potential to redefine the global payments landscape.
Recurring payments and boosted approval rates
Customers who opt for services without the benefit of network tokenisation could potentially experience service interruptions when their card is either lost or reaches its expiry date. In these scenarios, customers are compelled to re-input their card details following payment failures.
On the other hand, network tokenisation provides a sophisticated resolution by ensuring that cardholders aren’t required to revise their payment details upon receiving a new card. This method is associated with a customer’s card funding account as opposed to the physical card, paving the way for smooth and trouble-free recurring payments. This improved access to payment credentials streamlines the process, minimising payment declines, boosting authorisation rates, and enabling uninterrupted payments.
As businesses contemplate the adoption of this advanced technology, the advantages of increased authorisation rates compared to conventional PANs are significant.
Cooperative data with Visa, for instance, reveals an impressive uptick of up to five per cent in authorisation rates. Adopting network tokenisation not only strengthens security but also ushers in a seamless, efficient payment journey – ultimately leading to more contented and satisfied customers.
Mitigating penalty risk and decreasing costs
Among the costs associated with becoming a compliant merchant, expenditure related to protecting sensitive customer data emerges as a challenging yet vital responsibility. Adhering to the data security mandates stipulated by GDPR and PCI DSS can prove to be resource-intensive and costly. Non-compliance with these standards may even result in severe legal implications for merchants.
Despite this, network tokenisation simplifies the journey towards robust compliance by eliminating the need to handle sensitive data, thus effectively removing a significant obstacle. When incorporated into a merchant’s payment infrastructure, network tokenisation facilitates the efficient allocation of resources, saving both time and money.
Additionally, card schemes offer a reduced interchange rate for certain card categories associated with the network tokenisation label. This implies that merchants will incur lower costs for transactions involving network tokens, thereby reducing expenses while maintaining compliance and ensuring secure transactions for their customers.
While international e-commerce giants, due to their high volume of online transactions, naturally witness a large number of recurring transactions, allowing them to yield a substantially improved ROI, smaller merchants might not see immediate returns owing to initial set-up costs. However, all merchants can benefit from the operational advantages of network tokenisation. Globally, we’re observing robust growth, with over one in three transactions already tokenised. This trend indicates that merchants of all sizes may soon adopt this innovative technology for its evident benefits.
Harnessing data abundance pattern recognition in fraud prevention
Network tokenisation allows businesses to examine customer transactions and preferences without requiring direct access to their actual card data. By tracking token usage, companies can identify clear spending habits. If a customer consistently uses a specific token (linked to a particular payment method), a business can deduce the customer’s preference for that method. These insights provide companies with the ability to tailor their marketing efforts accordingly.
For instance, if a customer consistently makes purchases within a certain category, the company can use this information to send personalised advertisements or promotional offers relevant to that category. This not only enhances customer engagement but also promotes increased brand loyalty. On the other hand, network tokenisation also provides strong fraud protection by making any intercepted tokens useless. These tokens appear as random sequences to unauthorised entities, providing a strong defence against fraudulent activities.
This protective measure is especially crucial in the face of rising CNP transactions, which are more susceptible to fraud due to the absence of physical card verification. In addition, tokenisation helps detect unusual patterns that might signal fraudulent activities. Unusual token activity or irregular patterns can be red flags. VisaNet’s March 2022 report showed a remarkable 50 per cent reduction in fraud across Europe due to network tokenisation. These insights help companies address issues while prioritising customer privacy.
As digital commerce grows, consumers want faster, more convenient, more valuable, and more diverse options. Network tokenisation meets these demands and boosts customer loyalty in subscription-based models. It improves conversion rates, authorisation, fraud prevention, and cost efficiency. This makes network tokenisation secure, efficient, and competitive, attracting merchants looking to succeed in digital commerce.