Processing a payment has never been more complex – on the customer facing side, we see several choices for payment methods (BNPL, split payments offered by Monzo) and increasingly seamless processes however, for merchants, processing these alternative methods can be a huge headache. Gone are the days when a simple credit card number, expiration date, and name were sufficient. With the much-needed advancements in security, users must now frequently provide additional details such as CVV codes, and depending on the retailer, may also be asked to disclose IP addresses, geographic location and even recent social media interactions.
The need for more data is based on the request for better security measures — especially when stolen payment details can be bought for as little as $10 on the internet. According to research from NordVPN, hackers continue to gain easy access to millions of the card details that merchants have worked hard to protect.
The slight upside in all this is this – fraudsters can’t have all the real customer information to make a transaction look more genuine. Payment processers can use this to their benefit – requiring more data could mean better means of protection from fraud. Unfortunately, this tactic has a downside: it increases the risk of cybercriminals intercepting and exploiting confidential data.
The question on everyone’s mind is this – which way could card details and other information be adequately secured so thoroughly that even if it were stolen, it would be rendered useless? Here comes Tokenisation – the more secure answer to simpler payment security.
Explaining Tokenisation
Tokenisation serves to protect sensitive information. In payment security, tokenisation replaces a card’s 16-digit number with a unique, randomly generated series of characters called a “token”. As opposed to the original card number, a token is not useful if illegally obtained or obtained by hackers. This is because it can only be decoded within the payment network that issued it.
Tokenisation may be relatively newer on the payment scene, but it had existed and been applied in other concepts such as the tokenisation of assets in the 1990s. Subsequently, it has been applied to many fields including payment security. It started as security standard in 2013 but quickly grew in popularity with major players such as Mastercard employing it for the security of billions of their transactions in their Digital Enablement Service annually. Now, we couldn’t dream about securing payments without tokenisation – it has changed the game in payment security.
How it Works
As a customer enters card details on a website or adds a card to a digital wallet, the payment network generates a token. The token replaces the actual card number in storage and during transactions.
For instance, that site does not store your actual card number when you make a payment with your card details on an online store/site, instead, it stores the token. When you checkout, the token is used to process the payment, and behind the scenes, the payment network securely maps it to the original card details.
Advantages of Tokenisation
Tokenisation presents benefits to both consumers and merchants:
- Enhanced Security: Merchants never store actual card numbers, reducing the risk of breaches. Even if a hacker gains access to a database, the stolen tokens are useless outside the payment network.
- Lower Fraud Rates: Studies show that network tokenisation reduces fraud rates by up to 26% while improving transaction approval rates.
- Seamless Customer Experience: If a card expires or is replaced, network tokens update automatically, eliminating the need for customers to manually update payment information.
- Easier Compliance: Businesses using tokenisation reduce their burden under PCI DSS (Payment Card Industry Data Security Standards), as they are not storing raw card data.
The Progression of Tokenisation
Initially, tokenisation systems were proprietary and limited in scope. Merchants had to rely on specific payment processors, creating “walled gardens” of tokens that lacked interoperability. This often led to inefficiencies and restricted merchants’ ability to optimise their payment systems.
Today, network tokens—issued directly by payment networks like Mastercard—have revolutionised the process. Unlike traditional tokens, network tokens are interoperable across platforms, gateways, and merchants. They provide additional benefits, such as lower processing fees and automatic updates when card details change.
The Role of Network Tokenisation
Network tokenisation ensures that the expiration of a customer’s cards doesn’t interrupt commerce. When a card’s expiration date changes, the network token updates automatically, eliminating the need for customers to re-enter their information.
This experience aids merchants, too. Higher authorisation rates, typically ranging from 3% to 13%, can significantly impact revenue in high-volume sectors like e-commerce and digital goods. Network tokens also enable advanced features like “Click to Pay” and biometric authentication, creating a frictionless payment experience for customers.
Tokenisation and Subscription Services: Solidgate
Tokenisation isn’t just about security—it also impacts business operations, simplifying them for merchants. Storing tokens instead of raw card data reduces PCI DSS compliance challenges and protects customer information in the event of a breach. Additionally, network tokenisation’s ability to maintain seamless transactions helps merchants retain customers and improve conversion rates.
Take the payment processor Solidgate, they are a perfect example of the power of tokenisation: they are an ambitious payment processor, laser-focused on the goal of processing $100 billion in transactions in the next five years. As company processing billions in transactions, subscription payments are a significant part of its business, and that comes with challenges, on one hand, subscriptions should mean predictable sources of revenue, but in practice, they are complex and difficult to master. A failed payment due to an expired card can lead to churn—where a customer cancels a service because their payment did not go through. Hence why there is so much emphasis on controlling ‘churn’ and keeping the acceptance rates as high as possible.
Tokenisation can be a major part of this – the increase in authorisation rates also decreases customer churn, and each customer can be worth hundreds or thousands of dollars per year.
What’s Next for Tokenisation?
Tokenisation is evolving alongside emerging technologies, including:
- Biometric Authentication: Face and fingerprint recognition combined with tokenisation add an extra layer of security.
- Passkeys & Customer Whitelisting: New authentication methods that remove reliance on passwords while enhancing fraud prevention.
- AI-Driven Fraud Detection: AI and machine learning models are being trained to analyse tokenised transactions in real-time, identifying suspicious patterns more effectively.
In a world where payment fraud is a multi-billion-dollar problem, tokenisation is emerging as a critical solution. Investing in network tokenisation is not just about fraud prevention—it’s about staying ahead in a rapidly evolving payments landscape. With major card networks leading the charge, tokenisation is no longer just an option; it’s becoming the new standard in payments.
