Network tokenization has become an increasingly important component of online and mobile transactions. The process replaces sensitive card details, such as the primary account number (PAN), with a unique identifier, or “token.” This added layer of security protects both cardholders and merchants from potential data breaches. Visa and Mastercard have each developed their own tokenization services, Visa Token Service (VTS) and Mastercard Digital Enablement Service (MDES), which offer a range of benefits to merchants. However, as the technology has evolved, questions have been raised about whether network tokenization actually promotes exclusivity rather than competition. In this article, we explore the what, why, and how of network tokenization and how StrictlyZero and Prospay are ahead of the game.

Understanding Network Tokenization

Network tokenization goes beyond traditional payment gateway/acquirer tokenization by providing increased security through the use of cryptograms. This makes each token unique to a specific transactional context, thereby reducing the likelihood of fraud. With 6 in 10 US cardholders saving their card numbers online or in mobile apps, network tokenization offers a compelling solution for merchants looking to reduce friction during the checkout process and protect sensitive card information.

Benefits of Network Tokenization

1. Card on File (COF) updater: Network tokens ensure that merchants can still process transactions even if a cardholder’s underlying card is lost, expired, or compromised.
2. Reduced fraud: With network tokens being specific to transactional contexts, the likelihood of fraudulent transactions decreases, leading to increased trust, higher authorization rates, and reduced fraud-related costs for merchants.
3. Incentives: Visa and Mastercard offer slightly lower assessment fees for network tokenized transactions, potentially saving merchants up to 10 basis points in interchange fees.

Challenges and Controversy

Despite the benefits, network tokenization has faced criticism for promoting network exclusivity rather than competition. Critics argue that Visa and Mastercard have weaponized tokenization to maintain control over debit volume flows and undermine least-cost routing strategies. As a result, merchants may be unable to access cheaper regional debit networks like STAR, Accel, NYCE, and Pulse.

StrictlyZero and Prospay: Ahead of the Game

StrictlyZero and Prospay are two innovative companies that recognize the potential challenges of network tokenization and have developed solutions that prioritize both security and competition. By leveraging cutting-edge technology and fostering collaboration among stakeholders, these companies are driving the evolution of network tokenization in a more equitable direction. This allows merchants to take advantage of the benefits offered by network tokenization without compromising their ability to access alternative payment networks.

Conclusion

Network tokenization offers significant benefits for merchants, including enhanced security and reduced fraud. However, the technology’s potential impact on competition and routing choice has raised concerns. StrictlyZero and Prospay are at the forefront of addressing these issues by developing innovative solutions that strike a balance between security and competition. As the industry continues to evolve, these companies will play a crucial role in shaping the future of network tokenization and ensuring a more competitive and secure payment landscape.