Everything You Need To Know About Network Tokenization

If you accept credit cards, debit cards, or any other type of digital payment in your business, you’re facing a challenge. Fraud rates are growing in the United States, and business owners and C-suite managers must find new, innovative ways to keep their customers’ data safe within their payment ecosystem.

One of the most exciting developments in the fight against digital payment fraud has been payment tokenization. This process encrypts credit card data and turns it into an anonymous token — one that fraudster hackers could get their hands on without jeopardizing the payment information it represents. But what exactly is payment network tokenization, and what are the benefits of implementing this technology into your business model?

What is Network Tokenization?

Network tokenization is a natural evolution of PCI tokenization, also called vault tokenization. In PCI tokenization (a security measure introduced by the PCI Security Standards Council), a token replaces payment information at a specific point within the payment chain. The merchant collects the card data and registers it with a payment service provider; the payment service provider responds with a token. The merchant uses this token for transactions associated with the payment.

The problem with this process is that the payment network doesn’t use the token throughout the entire payment chain. Network tokenization solves that problem.

Network tokenization is the process of encrypting and converting consumer credit card and other payment data into tokens that are unique to the token requestor and Card Network. These tokens can flow seamlessly and purposefully through payment processors. Moreover, if hackers do get their hands on the token, the underlying payment data remains safe. So, how exactly does the process work?

The Basics of Network Tokenization

Network tokenization involves network tokens, or payment tokens, which are unique identifiers that take the place of credit card or other payment data across the payment chain or card network. For example, Visa network tokenization would describe the process of Visa replacing primary account numbers (PANs) with network tokens within its payment chain.

The Importance of Network Tokenization in Modern Payment Systems

As fraud rates continue growing across the United States, business owners must take extra steps to ensure the safety of their customers’ payment information.

Fortunately, network tokenization solutions give business owners a way to add a new layer of security to their payment process. After all, with tokenization, customer data hides behind the figurative smokescreen of encryption. Without the encryption key, con artists can’t do anything with the data they steal — even if they steal token information.

But that’s not the only important reason modern payment systems should include network tokenization. Another reason is that this tokenization allows for the seamless and accurate flow of information through every step of your payment chain. So, this technology is also a means to avoid false declines and increase approval rates.

How Network Tokenization Works

You may be wondering how a payment system can replace card details with an encrypted placeholder and use that placeholder across a payment chain. Find more information on the process below.

The Process of Tokenization

There are two primary stages in the payment network tokenization process. First, users must collect data securely and encrypt it so they can send it across communication lines to payment networks.

Next, they must turn that data into a token and return it to the party requesting the token from the payment network. Finally, users must store the token securely for use in the current transaction as well as future transactions.

Here’s how the process works.

Data Collection and Encryption

Tokenization is all about keeping payment data safe and secure. So, the process naturally starts with the safe and secure collection of that payment data.

Users typically do this through a payment gateway. Essentially, your customers will likely enter their payment details into your online order form. The part of the payment chain that collects this data is known as the payment gateway.

Quality payment gateways will encrypt the payment data as they collect it. This encryption is the first step of security involved in the tokenization process and a crucial step in the security of the process. That’s because once the data is encrypted, it will be sent over a communication provider to other parties in the payment chain. This encryption ensures that if hackers intercept the data in this transfer, they can’t do anything with it.

Token Generation and Storage

Once the customers enter their payment information, the following process starts for the creation of storage of network tokens. The merchant sends the encrypted payment information to the token gateway service, which will request a token for the payment network. Next, that payment network shares the request with the card issuer.

The token network receives the token from the issuer and sends it back to the payment gateway, which sends it to the merchant for storage and future use.

Integration With Payment Networks

It’s crucial to provide the same level of tokenization and security for all types of payment cards. Taking advantage of network tokenization in your business can indeed cause a headache associated with integrating multiple payment service providers, but it doesn’t have to.

The key is using a quality payment solutions provider and subscription platform like Revolv3. With Revolv3, integrating network tokenization into your business model is as simple as clicking a button and selecting the option to do so.

Benefits of Network Tokenization for Merchants

There are several benefits to taking advantage of network tokenization in your business. Network tokenization can enhance your security measures while improving your approval rates. It can also help you cut down on customer churn in your subscription business. Find out how below.  

Enhance Security Measures

Fraud is commonplace in the United States. That means the risk of fraud associated with charging credit cards is relatively high. Here are a few stats you may find shocking about credit card fraud:

• Credit card fraud is the most common form of identity theft.
• Nationwide fraud losses totaled over $10 billion in 2023.
• The United States’ share of global payments fraud is about 38.83%.

With these fraud statistics in mind, it’s essential to protect your customers’ payment information. That’s exactly what network tokenization does. It helps to ensure that those who take advantage of digital payment networks don’t become the next fraud victims. Network tokenization does so by replacing encrypted payment data with tokens that would be deemed useless outside of the payment network.

Improve Payment Authorization Rates

Approval rates are one of the most important statistics for online businesses. That’s especially the case for those operating a subscription-based business model.

Payment approvals typically mean your customers will stick around for the next billing cycle. On the other hand, payment declines could cost your company valuable revenue and potential profitability.

The good news is that network tokenization allows for the seamless and accurate flow of data from merchants through gateways and across payment chains. As a result, network tokenization typically leads to higher approval rates. In fact, according to Visa, network tokenization leads to a 2.1% improvement in approval rates across its network.

Reduce Customer Churn

Customer churn relates to the number of customers you lose over a predetermined time frame — monthly, quarterly, or annually. No matter which time period you track your customer churn across, network tokenization can help you reduce it.

One of the leading causes of customer churn is a declined payment. When payments decline, subscription customers often can’t be bothered to update their payment information, resulting in what could be an unwarranted cancellation. The good news is that network tokenization can help solve this issue.

Network tokenization helps to reduce false declines. And since it can lead to a 2.1% increase in approval rates, it may be able to reduce your customer churn rate by a similar amount.

Lower Costs

With fewer declines and fraudulent events, network tokenization can lead to lower costs. Higher approval rates will ensure your customers stay around because of a frictionless experience, boosting your profits. And better security will help you avoid losing money to hackers and failed compliance.

Leverage Revolv3's Security for Your Payment Processing Needs

If you’re looking for a secure way to charge a wide range of payment methods for your subscription business, look no further than Revolv3.

Revolv3 is a complete subscription management and payment platform that helps businesses grow. The platform uses state-of-the-art encryption and network tokenization to ensure that its customers — and their customers — are safe from credit card fraudsters. But that’s not the only reason switching to Revolv3 may help enhance your business.

Revolv3 is easily scalable and grows alongside your business. The platform is so dedicated to helping your business thrive that it got rid of common nickel and dime fees that other payment processors charge like declined transaction fees.

Moreover, network tokenization isn’t the only way Revolv3 works to improve your approval rates and reduce your customer churn. The platform also uses dynamic routing for a more efficient overall payment process.

Learn more about how Revolv3 makes a difference for subscription-based businesses by scheduling your free demo today.