Why network tokenization is essential for e-commerce

Profitability in e-commerce depends on conversion rate. Online retailers are increasingly investing in technologies that optimise their conversion rates throughout the checkout journey – from personalised recommendation engines to dynamic pricing and localised promotions. However, payments represent a critical point of failure that is often a “black box” for conversion optimisation, leaving many retailers in the dark about where customers are dropping off. 

This pain point is significant. In 2023, more than 1 in every 10 online transactions processed by enterprise e-commerce merchants failed. In emerging markets, this failure rate is often higher – ranging from 15-25%. Failed payments not only result in one lost sale – nearly two thirds of customers elect not to re-attempt a failed transaction or worse, abandon the merchant entirely. 

The impact of failed payments on e-commerce businesses 

A PYMNTS study surveying 300 executives from enterprise e-commerce businesses reported that despite the quantifiable impact of failed payments: 

• 82% of online retailers cited difficulty in identifying the causes of failed payments
• 18% cite this as the top challenge related to failed payments 
• 67% said that failed payments are difficult to recover.

A significant contributor to failed e-commerce payments is ‘false positives’ – when fraud monitoring rules reject a legitimate transaction. These errors put $157 billion of revenue at risk according to PYMNTS and despite recovery efforts, US merchants lost $81 billion in 2023. 

Other key challenges associated with failed payments include:

• negative impacts on customer acquisition and repeat purchases 
• increased operational cost to manage failed payment workflows
• additional customer support resources required to address customer complaints

In order to build a profitable, sustainable e-commerce business, executives need to increase conversion rates and reduce fraud without adding friction to the customer journey. 

This starts with finding ways to meaningfully tackle payment failure rates. 

‍Reducing payment failures with network tokens 

By mapping over 1,000 error codes, Precium is able to provide deep insight into the root causes of payment failures. While root causes vary by industry and merchant, there are three broad categories of payment failures in the e-commerce industry:

1. Technical failures: A technical failure occurs in the payment value chain or underlying infrastructure. This includes gateway downtime, acquirer errors, and connectivity timeouts.  
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2. Risk or information failures: A failure occurs due to anti-fraud rules or outdated details on file, such as expired cards. In subscription use cases, expired and lost cards can account for up to half of all failed payments.
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3. Customer-related failures: A failure resulting from customer behaviour or balances including insufficient funds, transaction limits exceeded, or incorrect card details entered.   

Network tokens, which represent a new standard of card tokenization, can increase success rates across all three of these categories.

How is network tokenization different from standard tokenization? 

 Tokenization is the process where a payment processor creates a token to represent a consumer’s card number to allow for recurring payments or one-click checkout for returning shoppers. Precium currently does this for our merchants, like all payments processors. The limitation of these tokens is that they can only be used by the payment gateway that created them and expire when the underlying card expires or is lost. 

Network tokens follow a similar process but are processor-agnostic meaning the token can be used across payment processors that support network tokens. The token is encrypted throughout the transaction process – reducing fraud rates and increasing authorisation. Network tokens are also automatically updated when a card is replaced or expired streamlining customer experience and lifecycle management. 

Network tokens help merchants reduce technical failures by allowing transactions to be routed between multiple payment processors in real-time, without disrupting the customer experience. 

Critically for e-commerce businesses, network tokens reduce false positive rates by 5-8% while protecting customers from fraud. The enhanced security measures lead to higher authorisation rates by concealing payment details at every stage of a transaction, reducing the risk of fraud. 

Why use network tokens with Precium? 

• Enjoy higher success rates and conversion, particularly lower rates of false declines 
• Cascade failed payments to another payments processor in real-time using our smart routing rules 
• Streamline customer experience with dynamic updating of card-on-file information when a consumer’s card is replaced or expires
• Own your customer tokens that can be used on multiple gateways and acquirers enabling you to switch processors as needed  
• Reduce fraud with end-to-end encryption with tokens stored in our PCI DSS Level 1 vault
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Network tokenization is becoming an essential feature of e-commerce. Collaborate with us to explore how network tokens can supercharge your card success rates.