By Jeff Hallenbeck, Head of Payments
With cybercriminals increasingly taking advantage of merchants who fail to secure payment cards and outdated cards negatively impacting conversion and customer experience, merchants are increasingly turning to third-party providers for card tokenization.
Often, when implementing a new tokenization strategy, it can be easy to make decisions that limit your opportunities to fully optimize your payment flow. Below, we’ve outlined five common pitfalls when implementing a tokenization strategy and provided tips on how to avoid them.
1. Don’t sacrifice processor flexibility
A great payments strategy revolves around maximizing the number of choices you can make on a transaction. Competition drives innovation in payments, so merchants need to ensure they are not locked into a single processor or a single payment path on a transaction.
When working with a processor for tokenization, note that processor tokens often bind a merchant to the processor generating its tokens. Therefore, if you are moving towards a multiprocessor or intelligent routing strategy, ensure that implementing tokenization does not come at the cost of being able to route the transaction to a different provider.
2. Don’t accept a token solution that doesn’t help you request and process network tokens
What else can your vault do for you? The days of simple PCI tokenization are gone. Now, merchants should push their vault providers to absorb the technical work of retrieving and keeping up-to-date network tokens, an essential part of a healthy payment processing strategy. What networks are the vault providers integrated with? What card details can they pass through to you?
3. Don’t statically determine which issuers to request network tokens from
While network tokens can reduce costs and increase authorization rates, not all issuers support them yet. How does your token vaulting solution (assuming it can provision a network token for you) know when to request a network token vs. not? How often does it try to provision a token against an issuer that doesn’t support it yet? Static rules and BIN lists will struggle to evolve as the issuer landscape shifts, so a smart provisioning strategy must be embedded in your vault.
Merchants should adaptively and consistently test network tokens with issuers to ensure they can maximize their opportunity when issuers do change behavior.
4. Don’t implement a simple retry strategy
A simple retry strategy can be expensive — merchants can lose the potential for lower interchange fees if they start with PAN. Still, they may also risk lower authorization fees if they start with a network token that is outdated.
Merchants should build logic that selects the right payment credential from the start, as this will reduce fees but also eliminate a lot of the noise from their payments acceptance data.
5. Don’t keep all cards updated
This may sound crazy, but keeping all cards on file updated is expensive as each update comes at a cost and often without the promise of a future sale. In a subscription model, there are merits to batch updating your cards before a payment is due. Still, the timing and frequency of when you update that credential (and which credential to update) can have a very material effect on your bottom-line cost of payments.
If your business falls outside of subscription, consider only strategically updating your payment cards in real-time as needed (for example, after a user is declined due to card expiration or cancellation). This allows you to shoulder the additional cost only when a sale is already in progress.
How to avoid these pitfalls
Merchants should consider an agnostic tokenization solution that leverages AI/ML to fully optimize the use of tokenization in their payment stack. Agnostic tokenization solutions unlock a multiprocessor strategy so merchants can take full advantage of intelligent routing that balances costs and conversions.
Leveraging AI/ML will also allow merchants to test tokens at scale to make the best decision that maximizes revenue on every transaction.
As tokenization continues to grow in popularity, leveraging a strategic solution that builds the foundation for long-term flexibility will ensure your business is set up to maximize results today and as your payment stack matures over time.
Jeff Hallenbeck currently serves as the Global Head of Payments for Forter, where he is focused on building unique payment products and partnerships on behalf of Forter customers with a goal of connecting the right data points with issuing banks to maximize approvals and eliminate fraud from the ecosystem.
