What are network tokens?

In card payments, tokenisation is a critical technology that enables smoother, more seamless payments experiences for returning customers. Tokens can be stored and maintained by organisations such as Payment Service Providers (PSPs), card networks, merchants or even digital wallets like Apple Pay and Google Pay. They must be encrypted to ensure the safety and security of the customer’s data. Network tokens are particularly important for businesses processing high-volume or high-value card payments. 

What is card tokenisation?

With cybercrime on the rise, businesses and financial institutions are under pressure to protect sensitive customer data. One effective method for doing this is tokenisation.

When card payments are made online, customers have the option to save their details to avoid the need to re-enter them every time they make a purchase. This makes future transactions faster and more seamless. However, if those details are stored as is, it would leave room for potential fraud. 

Instead of storing a customer’s real card details, PSPs or card networks can replace them with a random identifier, called a token. If a hacker were to intercept that token, it would be useless to them because it is meaningless outside of the intended payments system. They would not be able to see the true details of the card. 

Network vs gateway tokenisation

In payments, card numbers must be tokenised to reduce fraud. Primarily, there are two types of tokenisation: network tokens and gateway tokens.

• Network tokens are issued by the card networks such as Visa and Mastercard. They are created for a single merchant and can't be used across merchants.
• Gateway tokens are created by a payment gateway provider or PSP. They work only within that provider’s ecosystem, meaning they are less flexible and less future-proof.

While network and gateway tokens are the most relevant for card payments, they’re not the only forms of tokenisation in financial services. For example, digital wallets like Apple Pay or Google Pay use device-based tokens tied to a customer’s mobile phone, and some banks or large merchants create their own internal tokens to secure account or customer data.

The benefits of using network tokens

Compared to gateway tokens, network tokens are better at streamlining payments, future-proofing checkout and providing control. Network tokens:

• Are maintained by the card network. When a card expires or is reissued, the network automatically updates the token without any action from you or your customer. 

• Are interoperable across platforms. Network tokens work across apps, websites and in-person card terminals. So, if you are a business with an omnichannel strategy, network terminals will reduce checkout friction on all channels.

• Offer a smoother customer checkout experience. Customers don’t need to re-enter card details across platforms, which helps reduce failed payments and abandoned carts.

• Offer greater merchant flexibility. Depending on the provider, stored card tokens can remain accessible even if a merchant switches payment gateways, giving them more control and less dependency on a single provider. Stitch enables merchants to own their own network tokens, enabling greater flexibility. 

Why is card tokenisation important for South Africa?

In 2024, total fraud losses for South African-issued cards increased by 26% to R1.46 billion.

Online card fraud, also known as card-not-present (CNP) fraud, accounted for more than 68% of these losses. Debit card counterfeit fraud also spiked by 47.4%, with most incidents occurring at service stations.

These losses have real consequences for South Africans, especially as the cost of living continues to rise. Network tokenisation plays a critical role in protecting South African consumers and businesses from these threats. For example:

1. Partnering with a payment gateway that supports network tokenisation ensures card details are shielded from cyber-attacks, lowering online fraud risk.
   
2. Using a virtual card or digital wallet at point of sale (e.g. paying for petrol with Apple Pay) keeps card details safe from potentially compromised POS machines.

Network tokenisation isn’t just about reducing cart abandonment and chargebacks. It’s also about protecting your customers and strengthening their trust in your business.

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