How Network Tokenization Empowers Financial Services

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Network tokenization uses a network-issued token and unique transaction cryptograms to offer a streamlined and frictionless payment flow.

While these tokens ensure a seamless customer checkout, it simplifies the account verification processes. This eliminates the need to store sensitive financial account information.

Returns, breaches, fraud, and account takeovers are increasing. The entire ecosystem, consumer experience, and business operations are disrupted when payment methods are compromised.

Network tokenization offers a secure way to retrieve, verify, manage, and maintain financial data. It helps banks achieve robust security.

What is Network Tokenization?

Deloitte defines network tokenization as:

“Network Tokenization is an evolution in payment card data protection and transactional services for remote commerce and wallet-based transactions. Network Tokenization is an industry standard published by EMVCo and open to anyone in the payment ecosystem.

Here are a few ways in which network tokenization empowers financial services.

1. Reduces Frauds

As per a recent report by Security.org, “2023 Credit Card Fraud Report,”

  • 65% of credit or debit card users have experienced credit card fraud at least once.
  • The median fraud charge was USD 62 and has risen to USD 79, an increase of 27%.

With the expansion of e-commerce and contactless payments, the number of card-not-present transactions (CNP) has increased. But, the frauds accompanying CNP use cases have also increased significantly.

Banks must secure themselves from CNP fraud without hampering legitimate customer transactions. Hence, implementing network tokens reduces the impact of any potential data breach.

2. Enhances Authorization Rates

Increases in authorization rates can lead to revenue growth. Tokens are issued by networks and banks that can see all activity across the payment life cycle. Moreover, the token can be updated dynamically and doesn’t expire.

Hence, reoccurring declined charges due to old, incorrect card information will automatically be updated. This minimizes false declines and unnecessary churn on reoccurring revenue.

Network tokenization involves card issuers. These tokens offer additional details about the payment. Banks can approve more transactions due to boosted involvement, data, and security.

3. Maximize Repeat Business

Debit and credit cards have long shelf lives. But, these cards expire within two to five years or are lost, stolen, or damaged. When customers receive new cards, there might be a high chance that customers may wish to keep their details private from merchants. This requires merchants to request updated details from their customers.

Network tokenization solves the issue of expired or canceled cards, as these tokens are automatically updated in real-time. It ensures that the cardholders’ data is always up to date. This reduces involuntary churn and increases a business’ revenue potential as these payments are accurate and processed systematically.

Merchants can apply rules when, where, and how these tokens must be implemented. Therefore, if one token is compromised, it will not negatively impact other merchants’ transaction processes.

4. Enhances Authorization and Conversion Rates

One of the challenges in completing a transaction is validating a customer’s identity and payment details. Without network tokenization, creating a frictionless checkout experience for customers while meeting strict regulations is hard.

With network tokenization, the tokens issued by card networks are shared with the issuers. This allows the issuers to control the merchant’s token, making it simple to authorize transactions, leading to high authorization rates.

Friction at the checkout step causes payment abandonment. Customers demand a seamless payment experience. Banks must offer flexible options like storing cards on file, using one-click checkouts, and mobile wallets.

Network tokenization provides a more frictionless, secure, user-friendly payment process, boosting checkout conversion rates and revenue opportunities.

5. Lesser Payment Declines

Payment fraud management is a top priority for banks. Ensuring that the fraud does not affect the revenue and harm the reputation without declining payments from legitimate customers is essential.

Banks must use network tokens to boost the payment security strategy and mitigate such issues. This reduces businesses’ fraud-to-sales ratios and payment declines, resulting in higher payment success rates. Also, tokens are the only non-sensitive placeholder for the primary cardholder information. Hence, hackers cannot hack the details if they gain access.

6. Enhances Customer Experience

A better customer experience is achieved when banks create a safe, seamless, and frictionless online payment process for customers. With network tokens, customers do not necessarily have to update the expired payment methods stored on their user accounts.

After the cardholder’s authentication, these tokens do not require a verification method to process payments. This is ideal for customers who need to remember or often enter the wrong verification code, leading to a false decline and missed sales opportunities for merchants.

Network token transactions boost authorization rates with minimal interchange fees compared to standard provider tokens. Therefore, customers can relish an optimized checkout experience to help establish a dependable revenue.

Also Read: How Fintech is Revolutionizing the Future of Financial Services

Conclusion

As per a recent report by Juniper Research, “Network Tokenisation Market: 2023-2028,”

Network Tokenisation Market: 2023-2028

The dynamically updated network tokens boost authorization rates, simplify fraud management, improve customer experience with network tokenization, and update payment methods in real-time. It ensures that the cardholder’s credentials are current, even if the physical debit or credit card is locked due to fraud.

As the network token is proactively updated, lost, stolen, expired cards, or other failures become irrelevant. As a result, customers experience fewer false declines and have a better user experience for their next and recurring transactions.

Further, network token transactions can qualify for higher authorization rates and lower interchange fees than those using standard provider tokens.

Apoorva Kasam
Apoorva Kasam
Apoorva Kasam is a Global News Correspondent with TalkCMO. She has done her master's in Bioinformatics and has 18 months of experience in clinical and preclinical data management. She is a content-writing enthusiast, and this is her first stint writing articles on business technology. She specializes in marketing technology, data-driven marketing. Her ideal and digestible writing style displays the current trends, efficiencies, challenges, and relevant mitigation strategies businesses can look forward to. She is looking forward to exploring more technology insights in-depth.

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