Online payments have become an integral part of everyday life. However, as e-commerce develops, so does cybercrime. To prevent fraud and protect user data, online payment services are implementing various security protocols.
Tokenization is currently among the most advanced technologies for safeguarding sensitive information in online purchases. If you as a business owner are striving to offer your customers the highest data security level, this guide is for you. Keep reading to learn about card tokenization and its principle of operation.
Tokenization is a technology that replaces a customer's primary account number (PAN) with a token, which is essentially a randomly generated, unique placeholder. Such tokens are used to access, maintain, and retrieve the consumers’ credit card information and provide both your business and its clients with an improved fraud-management algorithm.
But what truly makes this security process stand out among other data protection methods is that a token has no true meaning or value. With the majority of anti-fraud systems, a security breach could lead to severe consequences due to criminals getting hold of all the essential data. Tokens, on the other hand, provide fraudsters with zero valuable information. Besides, there is no algorithm that allows third parties to change a token back to the data’s initial form. Let’s take a look at how exactly a credit card is tokenized.
Tokenization and encryption protect data effectively if implemented correctly and demonstrate the best results when combined. However, while both these methods perform essentially the same function, they feature some key differences.
One of the key distinctions between encryption and tokenization is that the latter requires significantly less computing resources. Faster processing of tokens is possible because certain data, either partially or fully, remains visible for analysis while all the confidential information is hidden.
Besides, tokenization is far more flexible than encryption. This is partly due to the fact that it is a non-mathematical approach that replaces sensitive data with non-sensitive substitutes without changing the data’s type or length. This way, the tokenized data stays secure while being processable for legacy systems.
To answer the question “how does tokenization work?” it’s best to start with an example. If the client's card number was 5678 1234 4321 8765, after tokenization it would appear as a code similar to this one: E54TY7HR18X. Thus, there is no connection between the token and data, so no matter how many times the client sends the same card information again, they will receive a different token every time.
Tokens are typically generated in real-time, and the procedure has no negative effect on the transactions’ speed. The standard payment tokenization process looks like this:
As you can see, credit card tokenization provides top-notch data security, but it is not the only advantage it has. Read ahead to find out how your business can benefit from this technology.
An alternative payment system requires several organizations to cooperate for providing end users with Near Field Communication (NFC) or other payment service-based technologies. A Trusted Service Manager (TSM) is often required to resolve the compatibility issue among the mobile operators and service providers. Tokenization can play an intermediary role for such entities.
As mentioned above, tokenization replaces the real card number with a placeholder with certain usage restrictions. If the tokenized data can be used without limits, or even in a broad sense, as in Apple Pay, the token takes on the same value as the original credit card number.
In such cases, the token can be protected by a second dynamic token that is unique for each transaction and is also associated with a specific payment card. One example of dynamic transaction-specific tokens is cryptograms used in the EMV specification.
Despite being a convenient data security method, tokenization faces certain restrictions and limitations:
As tokenization becomes more widespread, new approaches to its use emerge to address the current operational risks and complications.
Credit card tokenization goes far beyond being just a data security technology, as it assists merchants in creating smooth payment experiences and increasing customer satisfaction. Here are some of the benefits that tokenization brings to businesses:
Data tokenization solves one of the most important problems faced by businesses today - sensitive data protection. Evolving regulations and the severe reputational and financial risks associated with data breaches are setting the bar high for organizations to keep the information they process secure. Therefore, adopting credit card tokenization and finding the right payment service provider is crucial for any company that aims to move with the times.
Payneteasy is a leading payment platform provider established in 2006. We offer tailored solutions to fit the needs of PSPs, banks, financial institutions, nonprofits, and more. Therefore, we know what an important role first-class data security plays and how to help our clients achieve it.
Our Payneteasy Payment Gateway is a white-label platform that will allow you to accept payments securely and without delays. It comes with advantages that every business owner will appreciate, such as:
We are also happy to offer custom solutions to satisfy every client’s request to the fullest. Are you ready to level up your business’s payment and data security? Then go ahead and fill up the contact form, and we will get back to you in no time!