Why Merchants should adopt and adapt to Network Token?

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The term “network token” sounds quite weird and is not particularly appealing. However, as a cardholder it is highly likely you have already used network token without noticing, as the underlying technology when paying with Apple Pay for instance.

In reality, your credit card number (or PAN which stands for Personal Account Number) is not stored on your phone, instead it is represented by a network token, means a string of 16 randomized numbers associated with a PAN and generated in real time by a scheme such as Visa , 萬事達卡 , American Express or Cart?o Elo .

This network token will be used in lieu of the PAN to perform a transaction and is not designed to be used beyond this particular transaction, merchant and device. For each transaction performed with this token, it is required to provide a dynamic cryptogram with a lifecycle that can not exceed 24 hours. As a result, it enhances dramatically the level of security of an e-commerce transaction where a PAN might be compromised : PANs are far more likely to be stolen directly from the cardholder than intercepted during transport to the issuing bank (the credentials of the stolen card are used immediately on the web, or less commonly stolen from within a database, knowing the PCI DSS security standards set stringent rules for card storage).

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??So, network token are literally the next generation payment data.

Understanding the impact of their implementation in terms of both technical/process flow and data governance is just critical for anyone operating in e-commerce space nowadays.

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Visa and Mastercard are pushing really hard now for their adoption as it significantly enhances transaction security and dark side of the moon …enables market shares gain and or penetration (Apple Pay transactions are systematically routed towards Visa or Mastercard rails, notwithstanding possible co-badging with local schemes).

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Thanks to its sleek and unrivaled-till-now customer experience, Apple Pay has fostered customer adoption and utilisation (market traction) both on onboarding than offline/online store checkout experience. As a result, transactions have boomed and subsequently billions of network tokens have been created across the globe. Silently, this technology has now became mainstream.

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? Now, why is it important to focus on Network Token ?

First, it is always better to spot and anticipate an emerging trend early, rather than suffer any kind of negatives consequences later.

Second, if you orchestrate your payments using several PSPs in parallel for business continuity or to cover different regions or outsource to a payment orchestrator, it is worth having a closer look: As a substitute for PANs, network token are designed to be agnostic, means they will be tapped equally by gateways, acquirers and issuers. Whilst payment rails are widely optimised for network tokens, some payment providers instead use them to further lock in their customers, preventing them from seamlessly sending transactions to the competition.

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As of now, technology has emerged more than 5 years ago and network tokens benefits are already clearly quantifiable: Both Visa and Mastercard reported conversion uplift of around 3-5 % combined with reduction in fraud of around 25 %.

So here’s a quite simple calculation: Let’s just assume a basic 1 % uplift. On a 100 million € per year business, we are talking about a minimum 1 million € gain with minimal initial investment. There is definitely room here to earn a place in the sun.

??Question is no longer whether it is a priority but when to deal with network tokens.

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Now, what kind of transactions or more precisely use cases should be addressed?

The natural target is of course what’s called recurring billing (Merchant Initiated Transactions for the pros), means subscriptions, 1-clic or billing (where recurring amounts may vary according consumption, such as utilities). Thanks to the auto update feature, the converted PAN and expiry date become invariable and remain stable over time, avoiding revenue churn and preserving business. One-off transactions (Client Initiated Transactions) should also be considered as they benefit from higher conversion and fraud reduction. And these transactions will also be impacted by the positive or negative incentives the schemes set in place to speed up adoption.

OK, fair enough but too good to be true?

Indeed, there are a couple of limitations.

As a merchant, enabling network token means getting in control of your payment data. And for this,

??you need to capture the PAN on your checkout page therefore be PCI DSS compliant, providing you have :

? the volume (in theory there is no but IMHO at least 100 K/month)

? the willingness and

? the adequate resources to do so.

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For those below this 100 K threshold, check with your PSP if it processes network tokens and is able to deliver agnostic network tokens and …rely on them.

??For the time being, no BIN decoding is available with network token : It sounds logical but as the network token is intended to foster schemes business, transactions are routed to ... their rails. As a result, on us/off us routing, where transactions flows bypass schemes and are sent directly from acquirers to issuers will not be possible. For some merchants, it might be a deal breaker.

??Also network tokens are for the time being only available for e-commerce transactions so they will not be truly fit for an omnichannel approach (although omnichannel is expressed by retailers in a quite simple thing like a unique portal to visualize all kind of payment transactions whilst the payment tech guys tend to craft this need into complex payment user experience)

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Additionally, network tokens power the brand new EMV checkout experience, Click to Pay. While I consider it would bring quite a big advantage for small and mid-size merchants, even large retailers for their occasional shoppers can benefit from.

It aims to speed up payment process and replicate on internet the contactless experience on a point-of-sale terminal we have all enjoyed since the pandemic: Whatever card you have, just tap it and it works. Magic!

I remember recently I was attending to an event in Germany and was forced to change my flight back home due to a strike by security agents at the airports. I was hoping to get 1 of the 2 remaining seats left on a new flight, but the checkout process was so long and tedious, that by the I’d finished the flight was fully booked. Imagine how different my experience would have been if I could have completed that checkout in two clicks rather than keying in my personal and credit card details and waiting for the 3DS authentication?

According to Adyen , Click to Pay would reduce the duration of the checkout by up to 25 %. Time is money. Period.

In conclusion, network token will reduce the pain of payment for consumers, and also promise avoiding that one day soon (or later?) there will be no need to key in card credentials at every purchase. Now, for merchants, it will rather certainly add complexity into complexity. Therefore, outsourcing the workload might be an option, whilst bringing in house the data without sensitive attribute, then enjoying the beauty of truly enriched customer data.