What is Payment Tokenization?

Payment Tokenization: The idea of tokenizing has been around for a while. You can think of it as the process whereby you purchase plastic coins with limited value within a casino, without exchanging any money.

The world is moving on to credit card transactions and replacing more sensitive information by algorithms to prevent data breaches.

Merchants can process transactions without violating a customer’s banking information by using credit card tokenization.

What is the need for credit and debit card tokenization?

How does credit card tokenization work?

With an ID system that is one-time, and has no value to the owner of the credit card, sensitive information can now be sent over email rather than sending them a credit card.

This will generate a unique token to access and maintain credit card information.

Tokens don’t contain any personal data about your online shopping activity, but they show you exactly where your bank is storing this information.

What does a token actually do?

Transactions within the system will not be completed until after your charges are completed. They you should use tokens that are only transferred once the transaction is complete, so even if hackers find your customer’s data while it is being processed, they cannot use it.

Here is how the tokenized credit card transaction works:

1. Cardholder initiates the transaction and enters their sensitive credit card data. Credit card information is carried in a token which is given to the merchant.
2. Credit card information is sent to the merchant acquiring bank in the form of a token that can then be used to process transactions. Guidelines for acquring tokens
3. A look at token layers. The customer data is stored on secure virtual vaults, and then the token gets matched to their account number.
4. Once authorized, the customer’s data is being stored in the bank’s secured virtual vaults and the token gets matched to the customer’s account. A bank verifies funds for the transaction and allows or declines it
5. The bank verifies fund transfers and allows or declines the transaction. The transaction only continues after the payment is authorized, and a unique token is delivered to the merchant for all current and future transactions.
6. After authorization, a unique and encrypted token is returned to the merchant for future transactions and the original transaction data.
7. As a result, there’s no real change for the user. The entire tokenized credit card payment is happening behind the scenes so customers don’t have to do anything differently.

Credit card tokens and the benefits they have

With the amount of payment security that credit card tokenization provides, it’s easy to see why it has become so popular. Digital hackers and internal issues in your company are only a part of the many benefits this model provides; customers will feel more secure knowing their data is protected from outside threats and from within your organization.

Randomly generated tokens are only readable by the payment processor, so using them helps prevent cybercrime when you give customers a chance to pay anonymously.

As many businesses require sensitive data on their networks, complying with PCI DSS standards is often very hard, which can result in fines by the PCI Council.

With the introduction of tokens, a new payment method offers merchants an efficient way to meet expected PCI DSS security standards and minimize liability.

By removing customer card data from the network, you minimize the risks of card breach. You no longer have to invest in data protection – credit card tokenization will already do the job.

Using tokenization technology, you can protect your sensitive business data.

Tokenization vs. Encryption

While there are some similarities between encryption and tokenization, they are different in one major way.

Encryption is helpful to hide the content so that no one can read it. Each number, letter, or space on a card is transformed by the system in different ways; based on an encryption algorithm. Once decrypted, the information should be accessed with the key or password.

The difference between tokenization and encryption is that tokenization is not reversible like encryption; it can return to its original form at any point as long as you know the algorithm behind it.

Although encrypted data is “breakable”; PCI Council still views it as sensitive and thus this makes compliance with encryption obligations more expensive.

Encryption provides better security for transactions when using cards, but tokenization is a great option for payment protection when using cards.

To better secure sensitive data in transit and to comply with PCI DSS requirements; specialists recommend that both encryption and tokenization be implemented together. The two tactics protect from different angles by improving security.

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