The Benefits of Network Tokenization

Business leaders have plenty to keep them awake at night. How to keep their customers data secure and improve the shopping experience? How to keep on top of transaction fraud? How to minimize lifecycle management declines caused by fraud, expiration, and other reasons? Keeping authorization rates high, whilst minimizing fraud losses is tough enough. Doing so whilst delivering a seamless customer experience is even more challenging.

Fortunately, PayPal is here to help. PayPal allows every customer to feel like a VIP during the checkout experience by using tokenization and vaulting for large businesses to help them feel safe and secure. Tokenization keeps payment information private by turning card numbers into unique tokens which are then stored securely using vaulting. PayPal automatically updates and stores the account’s card in their vault so a payment can still clear and shoppers can make seamless repeat purchases.

When authorization rates suffer

Merchants know that keeping customer payment credentials secure should not come at the expense of the customer experience, especially as digital sales continue to grow. Forrester said in 2022 it expects online retail sales to grow at a 10% compound annual growth rate (CAGR) over the next five years to account for 30% of the market by 2027.1 But more transactions mean more potential for fraud attempts. A new PayPal study reveals that merchants lose an average of $3.7m each annually due to fraudulent online transactions.2

Fraud must be blocked as efficiently as possible during the transaction process. But at the same time the user experience for legitimate customers must be seamless. This is increasingly challenging, especially when transactions are declined by issuers due to potential fraud, expired details or other reasons. The combined impact can send authorization rates plummeting, and with them revenues and brand reputation.

How network tokenization leads to higher authorization rates

Merchants therefore face two big challenges. Fraud is increasingly sophisticated as criminal groups have ready access to personal and financial data, including card details and account credentials, which they use successfully to impersonate users. And lifecycle management declines, which sometimes occur when card details haven’t been updated by merchants, can also be significant burden. In the latter case, reaching out to customers directly to get updates can cost time and money.

Tokenization keeps payment information private by turning card numbers into unique tokens which are then stored securely using vaulting.

Fortunately, PayPal has two features to help with these challenges:

Network tokenization: This works by creating a unique credential (token) for a card that is different from its primary account number (PAN). It has two major benefits, in terms of reduced fraud risk and higher authorization rates:

  • There are fewer opportunities for data theft, as only the token rather than the underlying PAN is stored and sent by the merchant. As part of the network tokenization process, a unique cryptogram is also created and used with each cardholder-initiated transaction. This adds a second layer of protection, making it more difficult for fraudsters to use these credentials
  • If the underlying PAN is changed because of a reissued card due to fraud or expiration, the token associated with it will always remain usable. That’s because the card networks that map PANs to tokens will dynamically update the token. In this way, there’s much less chance transactions will be declined by issuers. Plus, the customer doesn’t even have to manually enter their new card details – ensuring a better user experience

PayPal tokenizes billions of payment credentials around the world each year. With 850 million cards tokenized, PayPal Braintree is already one of the biggest token service providers in the world.

Learn more about how PayPal is helping business optimize checkout and optimization.

Learn more about network tokenization.

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