As digital payments continue to replace more traditional methods of payment, network tokenization plays a key role in boosting security and efficiency across the card-not-present ecosystem, according to an update from Juniper Research.
By involving the issuing bank early in the transaction authorization process, network tokens not only “shift the liability from the merchant to the issuer but also foster greater trust in the interaction.” This, according to a report from Juniper Research.
This early issuer involvement significantly “boosts authorisation rates, which has the potential to align card-not-present approval rates with those of card-present transactions.”
Moreover, Juniper Research noted that the secure and reliable nature of network tokenization addresses “critical challenges currently facing card-not-present transactions today, particularly in the realms of fraud prevention, regulatory compliance, and consumer trust.”
Juniper Research says that it formally defines network tokenization as the following: The process of replacing sensitive card details with a token issued by a card network.
A whitepaper from Juniper Research explores the pivotal role of network tokenization in the payments landscape, the key actors “involved in facilitating network tokenization, and its trajectory as digital transformation accelerates within the financial industry.”
In 2010, the concept of tokens began to emerge in the payment security industry as a “response to the growing need for enhanced security and convenience for digital payments.”
As the rate of eCommerce transaction growth boomed, “the risks that originate from the card not being present became apparent.”
Juniper Research pointed out that this led to the “adaptation of techniques used to protect sensitive personal data in industries such as healthcare, so that data breaches in merchant systems would not result in card data being stolen.”
In September 2014, Apple introduced Apple Pay which “used network tokens to secure mobile payments.”
As mentioned in the update, this technological innovation was the result of “a partnership with Mastercard, Visa, and Amex.”
In the same year, the EMVCo, which is serving as a consortium of major card networks, announced work to “standardize payment tokenization and define the role of a token service provider.”
This formalized interoperability across networks by standardizing the format of the token, allowing it to be “used across different payment networks.”
In 2015, Visa and Mastercard had both launched services “offering network tokenization capabilities.”
This helped network tokenization gain traction “within digital wallet
markets.”
A year later, American Express launched its network token service which further “extended the presence of major card brands into the tokenisation market.”
Juniper Research further noted that Visa began offering “a reduction in interchange fees for qualifying network tokenised transactions, such as those using Apple Pay or Google Pay.”
The reduction was around five to ten basis point (bps) for merchants transacting “with network tokens, representing significant savings for businesses.”
This was possible due to the “higher authorisation rate and reduced fraud rate of network tokenised transactions.”
The EMVCo tokenisation guidelines were “updated in 2022 and were expanded to support interoperability between token service providers and merchants.”
The guidelines also support interoperability of tokens “across regions, making it easier for merchants to operate in multiple markets.”
Juniper Research also mentioned that the goal is to “create a common checkout experience, no matter who the merchant is or where the consumer is located.”
In 2022, Visa’s number of cards tokenized “outnumbered the number of its physical cards in circulation (4 billion).”
Global network tokenized transactions will “double by 2029, rising from 283 billion in 2025 to 574 billion in 2029.”
The valuable role of network tokenization in securing digital payments will drive “merchant adoption amidst escalating fraud concerns.”
Network tokenization, through ensuring “sensitive card information is protected at every stage of the transaction lifecycle, will significantly reduce fraud rates for eCommerce payments.”
It is paramount for merchants and payment processors to adopt network tokens, as Visa is set to impose “stricter global fraud thresholds by January 2026 which will require merchants to reduce fraud, or a fee will be imposed.”
With card-not-present fraud posing “a greater threat to merchants than cardpresent transactions, the adoption of innovative fraud prevention solutions, like network tokens, will become necessary.”
TSPs must develop value-added services, such “as real-time transaction analysis tools, to aid merchants to monitor and reduce their fraud rate.”
Apple has recently enabled third-party developers to “access NFC functionality on iPhones, creating innovation opportunities that TSPs must capitalize on.”
A lucrative opportunity for TSPs involves “forming partnerships with new digital wallets to integrate network tokenization, giving them the ability to compete directly with Apple Pay.”
Apple’s newfound openness with its NFC capabilities is significantly increasing “competition in digital wallets, creating a significant opportunity for TSPs to pursue.”