Tokenization replaces a card number with a stand in value, a token, that is worthless outside the system that issued it. The real card number lives in a secure vault, so the merchant can support one click checkout and recurring billing without ever storing raw card data. Gateway tokens come from your provider’s vault; network tokens come from the card schemes themselves.
Why it matters
Tokenization shrinks PCI DSS scope dramatically, which is reason enough for most merchants. Network tokens go further: they update themselves when a card is reissued and typically authorize at higher rates, which makes them a quiet weapon for subscription businesses. The strategic question is portability. Tokens locked in one provider’s vault are a switching cost, so merchants should know before signing whether their vault can be exported if the relationship ends.