The online payments landscape has undergone a dramatic transformation in recent years, with the rise of digital wallets, mobile payments, and embedded finance, to name a few. At the heart of this evolution lies the major card networks – American Express, Discover, Mastercard, and Visa – and one of their groundbreaking products: Network Tokens.
The rise of tokens: A more secure future for online payments
Online payments have come a long way since the beginning of ecommerce. While early payment solutions offered some level of security to defend against bad actors, they left much to be desired in terms of user experience and flexibility. Network tokens – also known as EMVco Tokens – first hit the scene in 2014 as a response to existing vulnerabilities, and still to this day remain one of the most important innovations in online payments.
To understand where the future of payments is headed and why, let’s take a look back at the history and evolution of payment tokens:
1990s: Gateway Tokens As online shopping gained momentum, companies like Authorize.Net, Bibit, and Cybersource emerged to provide secure payment processing, helping merchants avoid handling sensitive card information directly. These gateways stored sensitive data, such as primary account numbers (PAN), and replaced them with payment tokens—randomly generated strings of characters that couldn’t be reverse-engineered. This added an extra layer of security for online transactions. Gateways typically used hosted payment pages, where customers were redirected to a secure external site to enter their payment details—a method still employed today to reduce data risks for merchants.
2000s: Acquirer & Merchant Tokens As merchants became more tech-savvy, many began integrating directly with payment processors and Payment Service Providers (PSPs) via APIs, bypassing traditional gateways to maintain more control of the payment experience. This shift placed the responsibility for data security on larger merchants, who obtained PCI compliance and developed their own card tokens to protect sensitive information.
At the same time, acquirers and PSPs saw an opportunity to enhance security and streamline transactions by introducing acquirer tokens, further expanding the tokenization ecosystem. Acquirer tokens allowed merchants to store card data securely for recurring transactions and other purposes. Unlike gateway tokens, which were typically confined to the gateway’s platform, acquirer tokens were more versatile, functioning across multiple channels (in-store, online, mobile) within the acquirer’s broader ecosystem.
2014 and Beyond: Network Tokens A game-changer arrived in 2014 with the introduction of network tokens by the card networks themselves (Amex, Discover, Mastercard, and Visa). Initially adopted by digital wallets, network tokens have since gained widespread use across the payments ecosystem, offering significant benefits for both merchants and acquirers. Unlike other token types, network tokens replace the PAN with a unique identifier with no intrinsic value, greatly reducing the risk of data breaches. And because these tokens are issued directly by card networks, they can offer global interoperability and more dynamic security features than ever before. They manage card reissues seamlessly, unlike other tokens, which are typically static and require manual updates.
Network tokens: The most secure and efficient solution
The adoption of Network Tokens has significantly transformed online payments in several key ways:
Enhanced Security: By replacing sensitive card data, such as the PAN, with a unique identifier, network tokens greatly reduce the risk of data breaches. Merchants no longer need to store or handle sensitive card information, mitigating exposure to fraud.
Improved User Experience: The use of network tokens helps streamline the payment process by minimizing the need to re-enter card information or deal with outdated payment methods, reducing friction during transactions.
Increased Authorization Rates: Network tokens provide additional data to payment networks, leading to fewer rejected transactions and a higher rate of successful payments.
Overall, network tokens have made online payments more secure, user-friendly, and efficient, benefiting financial institutions, merchants, and consumers alike.
How do network tokens work exactly?
Although network tokens are often grouped together, it’s important to recognize that each card network provides its own distinct tokenization service with unique tokens. Merchants can access network tokens either by becoming token requestors themselves or by partnering with an existing requestor. Third-party providers like Skipify can act as token requestors for those who prefer not to manage tokenization directly.
These third-party providers are integrated with all major networks. In Skipify’s case, a shopper is recognized automatically at checkout by their email address, phone number, or device ID. After passcode authentication, Skipify requests a token from the network. The network verifies the information with the card issuer and returns a unique network token to Skipify.
To further enhance security, each payment made with a network token is assigned a unique cryptogram. This cryptographic element is requested by Skipify from the relevant network and included in the payment authorization request. The cryptogram serves as an additional layer of protection, ensuring the integrity and authenticity of the transaction.
The benefits of embracing Network Tokens
Network tokens are paving the way for the future of card payments, offering merchants a range of advantages:
Enhanced Authorization Rates: Network tokens have consistently demonstrated higher authorization rates, resulting in fewer transaction declines and increased customer satisfaction. By transmitting richer data during transactions, network tokens help issuers make better-informed decisions, leading to improved approval rates.
Lower Payment Costs: Merchants can benefit from reduced interchange and network fees when utilizing network tokens. By providing enhanced security and streamlined data transmission, network tokens qualify for lower-cost structures, making transactions more cost-effective.
Improved Issuer Confidence: Issuers favor network tokens due to their robust security protocols, which reduce the risk of fraudulent activity. The additional data elements network tokens supply—such as token lifecycle information and transaction context—further bolster issuer confidence, creating a more secure payment ecosystem.
Simplified Lifecycle Management: One of the key operational benefits of network tokens is simplified lifecycle management. Unlike traditional card details that require manual updates, network tokens are automatically managed by the networks and token requestors. This eliminates the need for merchants to invest in costly tools like Account Updater, as network tokens remain functional even when cards expire or are replaced—ensuring seamless transactions without merchant intervention.
By adopting network tokens, merchants can optimize payment operations, reduce costs, and provide a smoother, more secure experience for their customers. This forward-looking approach not only safeguards transactions but also boosts overall efficiency across the payment landscape.
How Skipify is Optimizing Network Tokens for Today and Tomorrow
Skipify is fully invested in tokenization as part of its mission to optimize the payment experience. By establishing direct connections with both card networks and issuers, Skipify seamlessly integrates network tokens into its checkout process to deliver exceptional payment performance for all of its merchant customers.
Industry-Leading Conversion: Skipify's strategic use of network tokens has resulted in an impressive 98.66% average authorization rate, significantly reducing payment declines without increasing fraud.
Enhanced Security: As a PCI Level 1 compliant company, Skipify securely stores PANs for shoppers who manually enter their card details. Future transactions are processed using network tokens, ensuring heightened security and reducing fraud risk.
Processor Agnostic: Unlike many processors that do not offer full support for network tokenization, Skipify is processor-agnostic, enabling merchants to leverage all the benefits of tokenization, regardless of their payment processor. This approach ensures that all online transactions, regardless of processor, benefit from the improved security, authorization rates, and efficiency of network tokens.
What does the future hold for network tokenization? At Skipify, we believe the journey has only just begun. While we’re already enhancing today’s checkout experiences, we're also excited about how tokenization will shape the future of payments. We’re thrilled to lead this innovation with our network and issuer partners, paving the way for a more secure and rewarding future. The potential is boundless, and we’re just getting started.
To learn more about tokenization at Skipify, contact us here.