4 Ways How Tokenization Makes E-commerce Checkouts Smoother

Is Tokenization the Key to Payment Convenience?

E-commerce in Europe is growing at a scorching pace. In 2021, Europe had over 500 million online shoppers, and it doesn’t seem to be slowing down anytime soon. Greater adoption of digital payments and new market regulations, like PSD2, have done much to set the stage for this rapid growth.

Despite this boom in online shopping, payment declines and payments fraud remain issues for merchants. Data shows that only 80% of online payments get approved, compared to 97% at a physical store. On the other hand, fraud pressure on merchants has been rising throughout 2021.

The SCA mandate in Europe requires all online transactions to use multi-factor authentication or MFA. MFA verifies every transaction using at least two of three possible factors – a PIN or password, a card or phone, or a biometric (fingerprint/ iris) scan.

But while it does a great job at stopping fraud, it also adds friction to the checkout process. This added friction is much cause for detriment. Research reveals that customers are more likely to give up on transactions that require MFA.

Tokenization seems to be the answer. But what is it, and how does it work?

What is Tokenization?

Enter tokenization; a method that converts sensitive card details into unique tokens or digital aliases. A token keeps the card data safe by encrypting it, making it useless to hackers.

Tokens have the same format as a primary account number (PAN) on a credit or debit card. You can use tokens in place of an actual card to securely make payments. A merchant can create as many tokens as required from one physical card.

The same card can have as many tokens as the number of enabled devices that the cardholder uses to pay – such as smartphones, wearables, and e-wallets. You can use tokenization for in-store, in-app, or online payments.

How Does It Work?

Tokenization encodes a customers’ debit or credit card data into a series of numbers, known as a token or alias. This token is used in the payment process in place of the real card numbers. Because tokens replace the physical card number, the payment data is unique to each transaction and can be used only by the merchant that requests it.

When a customer enters their card details, this data is sent to an external tokenization server where it is encrypted and stored safely, away from unauthorized access. You do not have to process or store the payment data. This minimizes the risk of data breaches and protects you and your customers. You also save on costs and effort that you would otherwise need to spend on PCI audits.

Unlike physical card details, tokens do not have an expiry date. When a customer is issued a new card from their bank, their credentials are automatically updated. This ensures they do not face any hassles during checkout.

4 Ways How Tokenization Makes Checkouts Smoother

Tokenization enables faster payments, keeps card data secure, and ensures merchants comply with PCI DSS laws. Also, it reduces SCA declines and makes the checkout experience smoother. This improves the CX and your brand engagement, driving loyalty and repeat sales.

1. Tokenization makes payments faster.
Because the card details are already stored in the form of a token, a customer does not need to re-enter the details. All a merchant needs to do is reference the token and process the payment.

Tokenization is perfect for one-click payments, subscriptions, installments, and digital wallet payments.

2. Tokenization keeps payment data secure.
When a customer enters their card details, this data is sent to an external tokenization server where it is encrypted and stored safely, away from unauthorized access. You do not have to process or store the payment data. This minimizes the risk of data breaches and keeps you and your customers safe.

3. Tokenization reduces false declines.
Tokenization reduces SCA declines and makes the checkout experience smoother.

Unlike physical card details, tokens do not have an expiry date. When a customer is issued a new card from their bank, their credentials are automatically updated. This ensures they do not face any hassles during checkout.

Tokenization adds more layers of security. Thus, the card-issuing bank has more confidence to approve transactions rather than falsely declining them.

4. Tokenization keeps you compliant with PCI DSS.
When you use tokenization, you do not have to process or store the payment data. Thus, you save on costs and effort that you would otherwise need to spend on PCI audits.

How Can Novalnet Help?

As a global PSP, many of Europe’s leading brands trust us with their payments. We can guide you on how to make your payments more efficient. We help you accept payments globally in 125+ currencies in 150+ automated country-specific payment methods. Set up your payments within minutes with minimal coding using our instant payment plug-ins. With our AI-based risk management solutions and advanced analytics, you can design the best payment experiences for your customers, all in a fully secure environment.

Reach out to us to know more about how to use tokenization for your payments.

Jose Augustine

Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.