Exploring payment tokenization: From PSP tokens and PSP-agnostic vaults to network tokens

Online shopping has become increasingly popular, and more than ever, customers expect a seamless shopping experience that delights them. From discovering the right product to completing the purchase, shoppers want the process to be as fast and easy as possible across every channel. This is a key reason why digital platforms focus so much on streamlining the most critical phase of the buyer experience - the checkout process. One way to do this is to ensure your most loyal repeat customers have a seamless payment process with minimal interactions when they come back to buy from you again. This can be done by capturing, storing, and reusing payment data for quicker checkout speed in subsequent purchases.
However, holding sensitive data such as credit card information increases the compliance burden for merchants. It poses significant risks in case of security breaches that lead to data loss. Merchants face severe consequences ranging from financial impact to reputational damage. A prime example of this is the Marriott data breach in 2018, which exposed the personal data of approximately 500 million guests. Among the leaked data were credit card numbers and expiration dates, making the incident one of the most severe breaches in history due to the sheer scale and sensitivity of the compromised data.
The industry has embraced payment tokenization to navigate the potential risks and challenges linked with storing sensitive card data and forestall situations akin to the Marriott breach. This security measure provides an effective solution that secures data and streamlines the payment process while enabling merchants to provide a seamless checkout experience.
What is payment tokenization?
Payment tokenization is a security measure that uses unique tokens to replace sensitive payment data, such as credit card numbers (also known as Primary Account Number - PAN) and bank account details. These tokens are still associated with the original data but do not contain meaningful information that could be exploited. This process safeguards sensitive card data during online transactions and facilitates seamless repeat sales, enabling a better experience for customers who do not need to re-enter their data each time.
So how does it work? When users shop online, their card details are collected by the payment processor of the merchant's choice. This processor securely stores sensitive card information in a payment vault, generates a unique token for the respective card and returns it to the merchant for subsequent transactions. For repeat purchases, merchants only deal with the tokens. This approach allows businesses to recognize repeat customers and saves them from having to re-enter their payment details for future purchases.
While most payment service providers (PSPs) offer built-in tokenization systems, depending solely on a single PSP creates limitations. If you decide to switch PSPs in the future, you need to re-tokenize your customer data or perform a token migration, both of which are processes that can be time-consuming and costly. Asking long-time repeat customers to provide card details again is not a great experience, and some parts of the tokens are constantly lost during migrations. Migrations are also usually highly manual and require efforts from multiple partners (e.g., PSP A team and PSP B team), making the process complicated.
To address these challenges and provide merchants with greater control over payment tokens, more digital platforms are adopting PSP-agnostic payment token vaults as a secure and more flexible alternative solution.
The flexibility of PSP-agnostic payment token vaults

Adopting a more innovative agnostic payment vault for managing payment tokens allows businesses to collaborate with multiple payment service providers (PSPs), gateways, and other partners without being locked to any specific one.
The main benefits of using agnostic payment vaults include the following:
- Independence from any specific payment service provider: enables your business to easily onboard new PSPs and switch between PSPs.
- Greater control over payment processing with less technical complexity: enables you to develop custom payment processing logic and use multiple PSPs while abstracting the technical complexity to handle the tokenization logic of each provider
- Increased payment performance: Improve authorization rates and boost the chances for successful payments by leveraging intelligent payment routing and retrying failed transactions with multiple PSPs.
Network tokens: the next step in tokenization
While agnostic vaults offer a flexible and scalable solution, network tokens introduce a new layer of security and efficiency. Created through partnerships between card networks and issuers, these tokens offer real-time updates and enhanced security features.
Unlike regular PSP tokens, network tokens are sent straight to the card issuer, who translates them back into card details. Although network tokens come with slightly higher fees compared to standard tokenization, they offer benefits that can counterbalance these costs:
- Enhanced Security: Network tokens have a cryptogram, making them less susceptible to fraudulent activities. This feature substantially enhances the capacity of schemes and issuers to detect potentially fraudulent activities, thereby elevating the security level of transactions.
- Improved payment authorization rates: Network tokens update data in real time, automatically mirroring any modifications to cardholder information, such as new expiration dates or account numbers. This proactive updating system eliminates manual interventions and mitigates the risk of transaction declines due to outdated information.
Choosing the right tokenization solution for your business
The choice of tokenization method depends on the unique needs and priorities of your business:
- PSP tokens: Best suited for small businesses prioritizing simplicity and ease of use.
- PSP-agnostic tokens: Recommended for both medium and large companies that need control and flexibility over payment processing.
- Network tokens: Ideal for both medium-sized and large multinational companies. It is essential for SaaS companies looking to improve the success rate of subsequent payments and ensure longer customer lifetime value, as they offer high-level security, functionality, and improved authorization rates.
Network tokens are slowly becoming a must-have for merchants. Offered by most of the major PSPs like Adyen, Stripe, and Checkout, network tokens, in combination with a PSP-agnostic payment vault, can be the optimal solution if security, efficiency, and seamless integration with various payment providers are your top priorities.
It's important to note, though, that network tokens are still in the adoption phase. Only some issuers support them, meaning standard tokenization is still crucial. As such, when choosing a solution, it's recommended that global merchants consider PSPs or vaults that offer network tokens and also provide standard tokenization to cover all bases.
How Payrails can streamline your token management
If you're looking to gain greater control over your customers' payment tokens without the need for extensive in-house development or complex PCI compliance burden, Payrails is here to help. Our team will work with you to develop and integrate a custom PSP-agnostic payment vault solution tailored to your specific needs while facilitating network token integration to improve performance and security. Contact us today to learn more about how Payrails can assist you in optimizing your payment performance.