Network Tokenization enables new products that merge ecomm and card present transactions to lower cost and increase customer convenience

Network tokens power modern subscription models

It is easy to think that the rise in the use of network tokenization is stimulated by the increasing dominance of Apple Pay in mobile transactions. However, there is no doubt that network tokenization also offers clear security and customer convenience advantages which are starting to drive up adoption. They replace card data with unique tokens in coordination with the card networks and issuers. They thus enable transactions to go ahead even if a card has been lost, locked, or expired. In other words, network tokens can power the modern trend for regular, subscription-based paying.

How then do network tokens secure transactions?

When provisioning a card, a unique network token is generated automatically by card networks such as Mastercard, Discover, VISA and American Express. This token is then securely transmitted to the merchant’s payment process or gateway whenever a payment is to be made. The payment processor decrypts the token using a secure key provided, again, by the card network. The payment processor then sends the decrypted token to the card network for authorisation. The card network verifies the token and ensures it corresponds with the correct cardholder account. If everything agrees with the network’s records, the transaction is approved and the merchant receives the payment.

It's great for smaller merchants as those accepting network tokens have reduced PCI DSS compliance requirements. It’s also great for customers as they don’t have to continually tap in card details into online interfaces or card terminals. This fact alone reduces the risk of card fraud by as much as 26 per cent, according to research commissioned by PYMNTS.com . ?

Better still, if a customer wants to terminate an in-app subscription, or is worried about the integrity of any merchant, they can simply revoke the single network token relevant to that merchant. They don’t have to cancel any of their cards – something which customers hate doing because it takes over a week to get a new card issued and often several weeks to manually update all the card details linked to the multiple online subscriptions which are now tied to the revoked card.

The role SoftPOS can play with network tokens

So how does this impact SoftPOS providers such as Mypinpad?? The initial provisioning of network tokens requires the gathering cardholder data which brings with it onerous PCI-DSS compliance requirements for merchants, while exposing cardholders to real security risks.? Our SoftPOS solution can protect the cardholder data with that initial card present transaction while ensuring a seamless customer experience.

How is this done? We have an SDK that can be embedded into a merchant app that can perform all elements of the payment process from transaction right through to provisioning. This keeps customers safer, while massively reducing PCI-DSS requirements for merchants, including those offering subscriptions.

Real power of network tokenization in enabling subscription-based models

We are buying more and more products and services via subscription today. Next time you are in your core business or personal bank account statement, count up the number of regular monthly subscriptions you are already paying for monthly. You might well be paying Adobe, Microsoft, Amazon, Xero and a number of other tech firms for up-to-date access to their software suites. Increasingly, we are buying cleaning, gardening, delivery, entertainment/TV and other home-based services by subscription also. Put simply, network tokens are currently the most secure and convenient way to power the growth of subscription-based buying.

Apple versus Android

The other linked development is payment via a merchant’s mobile app when on the move. Here too network tokens can be used to complete transactions – eliminating the need to show a bank card to a reader in public. Android mobiles have a head start since they offer open NFC access today.

By contrast, Apple exerts a good deal of control over NFC payments going via its iPhones via Apple Pay. Apple currently also places restrictions on third-party access to the iPhone's NFC technology although this too is changing as the tech giant recently unveiled plans to allow software developers across the EU to distribute their apps through channels other than Apple’s App Store.

And from next month, developers will have the option to provide alternative app stores on iPhones and can opt out of using Apple’s in-app payment system, which traditionally charges commissions of up to 30 per cent. This will offer a further boon to regular in-app, network token-based mobile payments. It all contributes to a blurring of the lines between card present and card not present transactions.

Network tokenization offers key to next wave of payments change

Surely, as we head towards the second quarter of the twenty first century, we must seek to embrace a highly secure and yet more customer-friendly level playing field for enabling mobile app payments to merchants without exposing app developers to punitive charges, some of which inevitably end up in transaction charges to merchants and then being passed onto consumers. Network tokenization is definitely part of making this happen, and Mypinpad is in a terrific place to support this important new development.