What is Tokenization?

And What Does it mean for Payments?

Written by Rebekah Moss 09 Jul 2020 - 5 Minutes reading time

Tokenization isn’t new. However, with the acceleration in digital payments across face-to-face and online channels; and Mastercard’s adoption of the service, it’s time to discuss how tokenization can make accepting payments safer and more cost-effective.

The ultimate result to be achieved from adopting tokenization was to prevent the replication of consumer bank details in online breaches. However, as e-commerce has evolved, the application of tokenization has evolved with it – demonstrating how checkout conversions can be increased through the adoption of the service.

What is Tokenization?

Tokenization allows payments to be accepted via mobile and e-commerce channels without compromising sensitive account details.

Tokenization is the process of taking sensitive data, such as the 16-digit card number on the front of a credit card and replacing it with a digital and unique identifier known as a token.

This payment data is replaced by a randomly generated number and can be implemented at various stages of the customer journey in order to process payments.

How are payments processed securely with tokenization?

Only the payment processor will be able to read the actual account details that have been tokenized. Different to encryption, where details can be reversed with a safe-key, tokenization is irreversible – with the original details being held securely in the PCI compliant processor’s payment gateway. When a payment is processed, tokens are passed through a payment gateway and any necessary wireless channels, without exposing any sensitive data. Additionally, through tokenization, merchants can quickly achieve PCI DSS compliance through the reduction of the payment data they ultimate need to store in-house – relying more on tokens over sensitive information.

Where might tokenization be used?

E-Wallets:

E-Wallets such as Apple Pay, Google Pay and other Android Pay supported payment methods are on the rise in a realm of contactless payments, but the technology behind them goes far beyond NFC chips and Face ID when it comes to protecting the consumer. E-Wallets rely on tokenization in order to create a digital replica of your debit or credit card - that is unique to your smartphone or device.

In-App Purchases:

Apps on your phone will utilise the information connected to tokenized accounts such as Google or Apple Pay, in order to securely fulfil orders without ever needing to request or access your bank details. Tokenization quickly provides a broad spectrum of apps with safe and convenient access to your shipping and billing information with the additional biometric confirmation typically needed to complete a purchase.

Online Shopping:

Tokenization is not only used to store a card on file safely as part of a ‘remember me’ system utilised in creating user accounts in e-commerce, but is also popularly used by retailers to process payments without exposing the consumer to a potential data breach – even if they checkout as a guest. Additionally, card information is uniquely tokenized for individual retailers to further protect consumers against any security breaches becoming involved in a wider-spread incident.

Subscription Payments:

As mentioned, tokenized payments are widely used to help merchants ‘remember’ their customers safely. Through the secure storage of payment data, a merchant can pull payments from a customer consistently without requiring details or verification from the cardholder each time.

When used to register information as part of optimising the customer experience, tokenization can facilitate one-click checkouts without compromising their security online.

In recalling registered and tokenized data at the payment stage, the number of elements in checkout are greatly reduced for a customer, alongside any opportunity for human error that may result in do not honours or chargebacks later on.

At its very core, tokenization is a cost-effective method in the fight against fraud.

With the biometric additions to its use cases such as Apple Pay and Android Pay, friendly fraud is minimised whereas any likelihood of criminal fraud or false declines is siphoned off through the substitution of sensitive and exposable data.

With the addition of Total Processing’s Account Updater tool, tokens do not expire. Instead they'll automatically update with any new payment credentials via Mastercard and Visa. Discover how to seamlessly accept tokenized payments today!

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