A subscription business wants to charge its customers without having to ask for their card number every single month. An ecommerce merchant likely wants one-click purchases without having to store all raw card numbers in its own database.
Payment tokenization allows for these scenarios to occur. Instead of asking for the card number, a token is used as a replacement value that the merchant references for future authorized payments.
For merchants that deal with high-risk products and services, tokenization can provide benefits beyond security. Benefits include improved continuity of payments, higher authorization rates, and easier processing of company changes.
How Payment Tokenization Works
A customer’s payment card contains a primary account number (PAN). Tokenization replaces that number with an alternative value that can be used within an approved payment environment.
EMVCo explains that an EMV Payment Token can be restricted to a particular merchant, device, or scenario. If the token is stolen, the restrictions limit its use.
A typical tokenized transaction looks like the following process:
- A customer enters their payment card through a secure form.
- The data is sent to a secure vault.
- A payment provider returns a token to the merchant.
- The merchant records the token instead of the PAN.
- Future charges to that account use that token.
- The provider links that token to the PAN.
- A merchant’s order system may contain a customer ID, token, brand of the payment card, and the last four digits of that number – without the PAN.
Tokenization is different from encryption. In encryption, readable data is converted to ciphertext that can only be decrypted by authorized parties with the proper decryption key. Payment tokenization replaces a payment card’s primary account number with another identifier that is stored within a secure token environment.
Many payment processing systems use both tokenization and encryption technologies. Encryption is used to secure data during transmission between systems. Tokenization reduces the need for that data to be transmitted or retained altogether.
Why Payment Tokenization Matters for High-Risk Merchants
High-risk companies typically process more card-not-present, recurring, future-delivery, or high-ticket sales. These transaction types create more potential for data compromise or staleness if payment data is breached or becomes outdated.
Tokenization payment security is effective for:
- recurring subscriptions
- one-click checkout
- card-on-file sales
- usage-based sales
- delayed sales
- omnichannel customers
- reduced data breach exposure
- fewer expired card declines
- easier payment processor migrations
Visa found that Visa Token transactions experienced a 28% reduction in fraud sales compared with PAN-based sales. Additionally, there was a 3% improvement in authorization rates for tokenized card-not-present sales. These findings are based on the specific merchants, card brands, and transaction types that were analyzed.
Tokenization does not make a transaction legitimate. An account with stolen access can still be provisioned to purchase items. Likewise, customers who purchase items with tokenized accounts can still experience disputes. Merchants will still need fraud screening, billing systems, and customer service departments.
Gateway Tokenization vs. Network Tokenization
The word “token” can describe several different technologies. Merchants should determine who issues each token, where it works and whether it can move with the business.
| Feature | Gateway Token | Network Token |
|---|---|---|
| Issued by | Gateway, processor or acquiring service provider | Registered token service provider working with a card network |
| Replaces PAN in merchant systems | Yes | Yes |
| Used in authorization | Gateway commonly retrieves or submits the underlying credential | Token can travel through the payment message instead of the PAN |
| Portability | Usually limited to the provider’s vault | May work across compatible processors and platforms |
| Credential updates | May require an account-updater service | Network can update the relationship when the underlying card changes |
| Best fit | Secure profiles and recurring billing within one gateway | Scalable card-on-file payments requiring lifecycle and processor flexibility |
PCI SSC distinguishes acquiring tokens from EMV Payment Tokens. Acquiring or gateway tokens are proprietary values created after the merchant receives payment credentials. EMV Payment Tokens are issued through registered token service providers and can be presented during the payment transaction without exposing the corresponding PAN to the merchant or acquirer.
Gateway Tokenization
Gateway tokenization allows payment information to be stored in the gateway’s vault and returns a customer or payment-profile identifier.
The Authorize.net Customer Information Manager allows merchants to store customer payment profiles for situations involving variable charges or purchases made by the same customer again and again. Authorize.net states that the payment information will remain within their system and will never leave the merchant’s application.
Tokenization through gateways works well for merchants that will remain with the same payment gateway provider. The issue comes with migrating merchants to a new payment gateway provider. Any token created through one payment gateway will not hold any meaning within another payment gateway’s vault.
Network Tokenization
Network tokenization replaces the PAN with a credential that is managed through the card network’s infrastructure. This credential can be tied to the merchant and can contain transaction-specific security information.
NMI allows network tokens to be stored within its Customer Token Vault, and gateway tokenization can be used for transactions or cards that are not eligible for a network token. NMI’s current aggregator only supports Visa and Mastercard network tokens.
Network tokens are also updated automatically in instances when the associated card is expired or replaced.
An account updater can be used to automatically detect when card information changes. Authorize.net offers an Account Updater that checks Visa and Mastercard accounts for changes to the account number or expiration date. Authorize.net reports that 20% to 35% of cards enrolled in the program will have their account information updated in the first month, but only 7% to 8% of accounts are updated each month after that initial period.
How to Choose the Right Payment Tokenization Strategy
Assess whether tokenization is appropriate before building subscriptions or importing large volumes of stored credentials.
Ask the gateway, processor or merchant-account provider:
- Do you use gateway tokens, network tokens or both?
- Which card brands and processors use network tokens?
- Can tokens be used for recurring and unscheduled card-on-file transactions?
- How are customers’ consents to storing their credit card data represented in your system?
- Are expired or replaced credit cards automatically updated within your system using tokens?
- Can tokens be moved to another processor or gateway?
- Who controls access to your token vault?
- What happens to your tokens after the merchant account is terminated?
- Are there fees associated with the creation, storage and updates of tokens?
- What are your responsibilities regarding PCI DSS compliance?
Token portability deserves particular attention. If a merchant with thousands of stored customer profiles is not able to manually re-enter each of those customers’ card details after changing payment processors, then that merchant will experience involuntary churn.
Prior to migrating to a new gateway, the merchant should obtain written answers to the following questions:
- Does the new gateway offer support for exporting and migrating tokens?
- Are the card networks and processors eligible for the payment gateway?
- Can the payment gateway map customer profiles to stored tokens?
- Does the payment gateway support recurring payment schedules?
- Does the payment gateway support storing consent and customer credentials on file?
- Does the payment gateway support issuing refunds for purchases made with the old gateway?
- Can the old gateway provide access to historical transactions?
- Does the gateway offer a testing and settlement period for new merchants?
Payment Nerds can assist merchants by providing a side-by-side comparison of NMI, Authorize.net and merchant account configurations that are compatible with the company. Such reviews include compatibility tests of token vaults, recurring payments and account updater tools. The availability of such comparisons is contingent upon the answer to each of the eight questions above.
How Payment Tokenization Affects PCI DSS Compliance
While tokenization can reduce the amount of card data that is present within a merchant environment, it does not exempt the merchant from the requirements of the PCI DSS. Scope applies to merchants that have a means of collecting card data or of accessing PAN data from their systems. Any systems that have access to or store PAN data are covered by the PCI DSS.
Additionally, merchants cannot store card verification codes after the authorization of the transaction. Replacing the PAN with a token does not provide merchants with the permission to store the CVV number and other verification data.
Payment Tokenization Still Requires Fraud Prevention
Using tokenization helps reduce merchants’ exposure to the unauthorized use of their card data. However, merchants are still required to implement the following fraud controls:
- account-login security
- multifactor authentication
- velocity controls
- device and IP analysis
- card-testing protection
- employee permissions
- transaction monitoring
- EMV 3-D Secure
- dispute and refund controls
These fraud controls are still applicable to the Visa Acquirer Monitoring Program (VAMP). While tokenization helps to protect merchants from fraud, the VAMP program also investigates non-fraud-related disputes between Visa and merchants. Additionally, subscription merchants that utilize tokenization can still be the subject of disputes from Visa, even with the implementation of tokenization.
Payment Tokenization Questions for High-Risk Merchants
Q: What is payment tokenization?
A: Payment tokenization replaces the card’s primary account number with another digital value that allows the merchant to complete approved payments without retaining the full card number.
Q: What is tokenization payment security?
A: Tokenization payment security limits the amount of card data that merchants must store and transmit. The digital value assigned to the card has little or no value outside the transaction.
Q: What is network tokenization?
A: Network tokenization uses tokens issued through the card companies’ networks. These tokens can be limited to a specific merchant, device or situation and will automatically update the digital value if the card changes.
Q: Is tokenization the same as encryption?
A: No. Encryption converts data into unreadable ciphertext using a key for decryption. Tokenization substitutes the original data with a different identifier, but both are linked through the protected tokenization process.
Q: Does tokenization stop chargebacks?
A: Tokenization lessens the risk of some types of unauthorized payments, but doesn’t eliminate all claims. Merchants still need to ensure clear descriptors, fulfillment, cancellation, and fraud screening.
Q: Are tokens transferable to another gateway?
A: Transferability may depend on the type of token. Gateway tokens may have limitations, while network tokens are more likely to be portable across compatible processors.
Q: Does tokenization reduce PCI DSS scope?
A: It may reduce the number of systems that are exposed to account data. However, the organization is still responsible for determining the scope of its PCI DSS controls.
Q: Are network tokens automatically updated?
A: In most cases, if the customer replaces their card or it expires, the token will be automatically updated to reflect the new account number.
Q: Can NMI and Authorize.net tokenize stored cards?
A: Both of these companies offer functionality to store customer profile and token information. NMI also offers network tokenization capabilities, as does Authorize.net with its Customer Information Manager and Account Updater services.
Build a Secure Payment Tokenization Strategy
Tokenization reduces the need for high-risk merchants to store and transmit card data. The gateway tokens provide secure customer profiles. Additionally, network tokens provide card lifecycle management and processor flexibility.
The implementation of tokenized payments is just as important as the technology behind them. High-risk merchants must ensure that their technology providers offer network coverage, token portability, recurring payments, and PCI compliance before placing all of their customers’ data in one vault.
Sources
- EMVCo. “EMV Payment Tokenisation.” Accessed August 2026.
- Visa. “Visa Token Service.” Accessed August 2026.
- Visa. “Visa Token Service Momentum.” Accessed August 2026.
- Mastercard. “Payment Tokenization.” Accessed August 2026.
- NMI. “Network Tokens Explained: Safer Payments, Lower Costs.” Accessed August 2026.
- Authorize.net. “Customer Profiles API.” Accessed August 2026.
- Authorize.net. “Account Updater.” Accessed August 2026.
- PCI Security Standards Council. “Acquiring Tokens, Issuer Tokens and Payment Tokens.” Accessed August 2026.
