Why network tokenization is essential for e-commerce

Failed payments impact all businesses. But e-commerce enterprises in particular dedicate immense effort towards optimising their conversion, only to have failed payments result in cart abandonment, lost customers, and reduced profitability.?

While retailers are increasingly investing in technologies that optimise their conversion rates – from personalised recommendation engines to dynamic pricing and localised promotions – payments represent a critical point of failure that is often a “black box.” The inability to identify why payments are failing leaves retailers in the dark about where customers are dropping off and impacts their ability to optimise the checkout process.?

This pain point is significant. A PYMNTS study surveying 300 executives from enterprise e-commerce businesses reported that despite the quantifiable impact of failed payments:?

• 82% of online retailers cited difficulty in identifying the causes of failed payments
• 18% cite this as the top challenge related to failed payments?
• 67% said that failed payments are difficult to recover.

A significant contributor to failed e-commerce payments is ‘false positives’ – when fraud monitoring rules reject a legitimate transaction. These errors put $157 billion of revenue at risk according to PYMNTS and despite recovery efforts, US merchants lost $81 billion in 2023.?

Network tokenization enables e-commerce merchants to meaningfully tackle payment failures.?

What is network tokenization??

Network tokens are a new way to process card payments that increase authorisation rates, and eliminate expired card payment failures.?

“More than 10% of online transactions processed by the average enterprise e-commerce merchant fail. Businesses are losing customers and leaving money on the table, and don’t yet have the tools to solve this problem effectively,” says Ruaan Botha, CEO and co-founder.?

Tokenization is an encryption process by which sensitive card data is replaced with a unique string, called a token, that acts as a reference to the underlying data.?

While tokenization has become the mainstream standard for secure online payment processing, most tokens today are gateway tokens issued by a single processor and are only valid for that processor. When the underlying card is lost or stolen, gateway tokens become invalid. Moreover, the tokens cannot be used on other payment gateways in the event of downtime, and keep merchants locked in even when they experience unreliable service.

Fast becoming the global standard, network tokens represent the next frontier in tokenization.

Network tokens are generated by the card schemes (such as Visa, Mastercard) when a consumer uses their card. The card schemes are responsible for maintaining the tokens so that they remain valid, even if the underlying card data changes or expires. Network tokens are interoperable across payment processors and are encrypted throughout the payment process, offering more security to consumers and merchants.

Why is network tokenization essential for e-commerce?

Identifying and resolving the root causes of payment failures is a top priority for e-commerce executives. While there are hundreds of potential root causes, failures are most often caused by expired or lost cards, false positives , and acquirer or gateway downtime.?

E-commerce merchants adopting network tokens achieve:

• Higher conversion and success rates due to lower rates of false declines and real-time cascading?
• Improved customer experience with dynamic updating of card-on-file information when a consumer’s card is replaced or expires
• Payment freedom by owning customer tokens that can be used on multiple gateways and acquirers enabling merchants to switch processors as needed??
• Reduced fraud with end-to-end encryption and higher security standards

“The focus for online merchants is growth – how to increase conversion rates, reduce fraud, and improve payment operations in a sustainable, profitable way. Network tokens are an essential step in this process,” concludes Botha.

Precium’s network token solution is the first of its kind in South Africa. As a PCI DSS Level 1 payments provider, the company helps businesses optimise payment performance, automate financial operations, and craft extraordinary customer experiences through its modular payment platform. Collaborate with us to explore how network tokens can supercharge your card success rates.