Protect Payment Information with Tokenization

What is Payment Tokenization?

Tokenization is the process of protecting sensitive data by replacing it with an algorithmically generated number called a token. Often tokenization is used to prevent credit card fraud. In credit card tokenization, the customer’s primary account number (PAN) is replaced with a series of randomly generated numbers, which is called the “token.” These tokens can then be passed through the internet, or the various wireless networks needed to process the payment without actual bank details being exposed. The actual bank account number is held safe in a secure token vault.

The token is unique for every transaction, meaning it cannot be used in another shop for a different purchase. When leveraging payment tokenization solutions, the customer data that is stored by online stores becomes worthless for hackers and data payment breaches will not affect users since none of their sensitive information is stored on servers.

How Does It Work?

Below is a breakdown of the tokenization process for mobile or online payments:

1. Customer makes an online purchase and provides their credit card information.
2. A token is requested from the payment service provider.
3. The token request is shared with the user’s bank or account provider.
4. When confirmed, the user’s PAN is substituted with a token.
5. The token is utilized for permitting a purchase. Future transactions by the same customer will use a different token.

Where is Tokenization Primarily Used?

Mobile Payments – When credit card information is saved to a mobile wallet, such as Google Pay or Apple Pay, the card number is replaced with a token which is sent to the issuing bank. This means that no card details are jeopardized if a smartphone is lost and stolen, as real payment data isn’t held by the device.

e-Commerce – Tokenization provides a more personalized payment experience by enabling customers to save their payment preferences for future purchases. Because tokenized card information is saved to their account, no sensitive information can be stolen or lost in the event of a data breach.

Apps – If a device is storing tokenized payment information, such as via a mobile wallet, shopping apps can integrate with this directly to avoid consumers needing to input card information. Large retailers, including Amazon, have launched their own in-app stores that utilize tokenization.

Why Should Merchants Invest in Tokenization?

Ensure PCI compliance – Using payment tokenization minimizes the risk of data hacks because real payment information isn’t stored on a merchant’s server, making it possible to achieve compliance without costly security systems.

Protect a wide variety of payment solutions – Tokenization enables merchants to offer a high level of data protection across a variety of payment technologies; including credit cards, Apple Pay, Buy Now, Pay Later, and even cryptocurrency. This means that businesses that want to diversify their payment options don’t have to worry about subscribing to additional payment protection systems and they are able to meet their customers’ payment preferences.

Enable one-click payments and safe recurring billing – Allowing customers to store payment details on a merchant’s website via a shopping account or recurring billing plan helps streamline the shopping experience and makes payments easier and faster for returning customers while protecting the customer’s data.

Enhancing the customer experience – When customers trust that a merchant will keep their data safe and secure, they’re much more likely to become a repeat customer. Token service providers typically run an open API that integrates directly with a chosen payment system, making it easy to offer a wide variety of payment services.