As merchants and businesses are under increasing pressure to ensure the best payment experience for customers, the use of network tokens is fast becoming an effective way to deliver on the promise of a more seamless, secure payment process, while achieving better approval rates. Understanding what tokens are and how they are used is key to strengthening a payment optimization strategy.
Network tokens are provided by each of the major card networks in lieu of the cardholder’s Primary Account Number (PAN) to reduce risk and create a more secure transaction. Also known as EMVCo tokens or payment tokens, network tokens move
through the payment networks in much the same way as a PAN, allowing transactions to occur without the merchant being exposed to the underlying PAN. For the purpose of this article, we will focus on network tokens that are used for credential on file payments (CNP).
Network tokenization services provision the tokens directly from the card networks for businesses looking to use them for transactions. For instance, as a token requester, Fiserv has integrated into each of the token service providers, Visa, MasterCard, Discover and Amex, to obtain network tokens on behalf of clients. Fiserv then sends the PAN to the card network, and they pass it to the issuer. In response, Fiserv gets a network token back. To further ensure security and faster transactions, Fiserv vaults the network token attributes for future use. Network tokens have multiple controls that are enforced during a transaction to prevent fraud, including the utilization of a single use cryptogram that accompanies the token as a form of merchant authentication.
Cryptograms are used for every consumer-initiated transaction, as well as for the first in a series of reoccurring or scheduled merchant-initiated transactions. Merchant-initiated transactions are still consumer payments, but are based on a payment cycle that exists for the merchant, such as a monthly gym membership fee.
Token Requestors, such as Fiserv, rely on API connectivity with the Token Service Providers for provisioning and the issuance of single use cryptograms. Fiserv provisions the Network Token in the background, eliminating any latency that would adversely impact the authorization. Fiserv will also identify transactions that require single use cryptograms and request on-behalf-of the merchant during the authorization.
Amongst the benefits of adopting payment tokens is the fact that they are dynamically updated in real time to ensure credentials are always current. This creates a more seamless and frictionless experience for both the customer and the merchant.
Network Tokens can reduce interchange costs. For instance, the Visa Network Token interchange rate is up to 10 bps lower than the non-tokenized rates on qualifying transactions. Tokens have been proven to deliver higher approval rates, which help drive immediate revenue. Transacting with network tokens provides an average 2.1% authorization uptick over using PAN for CNP transactions. Tokens also enhance security and reduce fraud. Visa reports that when merchants leverage Visa-issued network tokens, fraud rates decline by an average of 26%.
Stu Dwyer, Director of Global Payments, Partnerships, Product and Optimization at Microsoft, concurs. “Tokens provide a constantly updated payment form factor, whether it's stored by a merchant or stored by Fiserv, which affords less opportunity for those transactions to be declined because of stale credentials. At Microsoft, we see better churn statistics as a result of embracing tokens as a primary form factor for card payments, particularly subscription fees. Plus, tokens are an inherently safer transaction form factor than PAN,” stated Dwyer.
Based on Microsoft’s extensive experience, Dwyer shared important considerations businesses will want to think about on the road to adopting network tokens. According to Dwyer, the first question a merchant will want to ask themselves is what does their performance look like today? How are they approaching card payments? What is their OKR or KPI around optimization? And then begin to map out the way in which tokenization can incrementally get closer to that number.
Dwyer also suggested looking at the cost of maintaining a payment credential that is stored in a merchant’s own vault. By adopting network tokens, they can remove the burden of PCI scope, eliminating the need to store payment credentials in their own ecosystem.
He also recommends that merchants consider what they are selling and who they are selling to, with an eye toward which products and markets are card centric, and whether better performance can be achieved by adopting tokens over PAN.
“For us at Microsoft, it's been a question of embracing the token, seeing how performance changes, and working with the ecosystem to further optimize our payment process. And I think this is where partnership with organizations like Fiserv comes to the fore, because they can be instrumental in achieving that optimization,” concluded Dwyer.
For businesses looking to maximize payment authorization approvals and reduce declines, network tokens offer a highly effective payment optimization strategy. Network tokens increase security and reduce fraud, while creating a seamless payment experience for merchants, and most importantly, for their customers.