The benefits of network tokenization

When authorization rates suffer

In May 2023, the Census Bureau found that online sales in the U.S. had topped $1 trillion, with the estimated value of remote payment transactions projected to exceed $5.6 trillion by 2025.¹

A higher volume of transactions means more potential for fraud attempts. E-commerce businesses lose nearly $48 billion to fraud each year,² and this figure is expected to rise to $54 billion by 2028.¹ But fraud isn’t the only threat to a business’s authorization rates. Something as simple as a customer’s card details changing due to the card being lost, stolen, or expired can also lead to declined transactions.

Retailers need to mitigate payment fraud risk and associated financial losses — but they also need to ensure a frictionless authorization experience for legitimate customers. Striking this balance becomes increasingly complex as incorrect declines due to mistaken suspicions of fraud, outdated information, or other issues can mistakenly block valid transactions.

Such declines not only reduce authorization rates but also harm the customer experience and, subsequently, their trust and loyalty. In one study, 47% of online sellers indicated a very or extremely negative impact of false declines on customer satisfaction.³

Keep payment information secure

One way to tackle this challenge is to use network tokenization to enhance the security of payment information — with the added benefit of minimizing declines due to lost or expired cards. Network tokenization replaces the primary account number (PAN) with a token that retains all the essential functionalities of a card transaction without exposing the actual card details. Tokens are also updated in real time, so payment information remains fresh even when a customer’s card is updated or replaced.

Each token is unique to a specific card on a particular device and cannot be reused outside the original context in which it was generated. This means that even if the token is intercepted, it’s useless in any other transaction, environment, or attempt at fraud.

The security of tokenization is underpinned by its ability to disassociate sensitive data from the transaction process. Unlike traditional card transactions, where card details are potentially exposed during the payment process, tokenized transactions ensure that the actual card numbers are never stored on merchant systems or transmitted over the internet.

Instead, these details are secured in a digital vault, safeguarding against data breaches. This vaulting process is fortified by stringent encryption standards, which make unauthorized access nearly impossible.

The vault itself is managed by trusted token service providers who must comply with robust security standards and regulations, ensuring a high level of protection. These providers maintain the tokens and their corresponding decryption keys away from the merchant systems, and that minimizes the risk of internal or external threats.

As merchants do not handle or store sensitive card data directly, leveraging network tokenization also simplifies compliance with industry requirements, such as the Payment Card Industry Data Security Standards (PCI DSS).

How network tokenization leads to higher authorization rates

One of the biggest benefits of network tokenization is its ability to help increase authorization rates, whether by targeting fraud or by minimizing false declines. In fact, 47% of merchants have employed network tokenization technology for this very reason.⁴

Here’s where it helps:

• Reduced card information errors: Network tokenization minimizes common transaction errors, such as outdated or canceled card details, by replacing them with a unique token that card issuers update in real time.

• Lowered fraud risk: Since each token is unique to a specific business and can’t be used in other contexts, they’re more secure than traditional PANs. Visa network tokens, for instance, can reduce fraud by 18%.¹

• Seamless integration into payment systems: Tokens are designed to maintain the format of traditional card numbers, meaning they can fit seamlessly into existing payment infrastructures. This compatibility prevents disruptions in the payment process, enabling smoother and more reliable transactions — for businesses and customers.

Research shows that transacting with network tokens instead of traditional credit card numbers online can improve authorization rates — for example, Visa network tokens deliver a 4.3% authorization rate lift, which can translate to millions of dollars of recovered revenue for enterprise merchants.¹

Learn more about common checkout and optimization challenges for enterprises.

Maintain security alongside customer experience

Most merchants recognize that keeping customer payment credentials secure should not come at the expense of the customer experience, especially as digital sales continue to grow. One survey revealed that 48% of merchants implemented tokenization specifically to improve the customer experience.⁵

Beyond boosting authorization rates, here’s how tokenization balances security and customer experience in a way that encourages shoppers to become loyal customers:

• Speed and efficiency: Tokenization processes transactions quickly, ensuring no perceptible delay for the customer. Since the token replaces the card number, it can be processed as swiftly as a normal card transaction, maintaining a seamless flow during checkout in a way that keeps customer satisfaction high.

• Reducing false declines: False declines often occur due to suspicion of fraud, but with tokenization, fraud detection accuracy improves. Since tokens provide unique identifiers specific to each transaction, they reduce the likelihood of legitimate transactions being flagged as fraudulent. This not only minimizes customer frustration but also helps businesses avoid lost sales.

Leveraging PayPal’s network tokenization

Ready to get started with network tokenization? By choosing PayPal Braintree, enterprises tap into a scalable, future-ready payment solution that supports expansion goals across multiple global markets.

Learn more about how PayPal can help you secure transactions while increasing customer trust, satisfaction, and revenue growth today.