In this blog post, you are going to learn about payment Tokenization and How does payment Tokenization Work? in the Decentralized finance industry.
The payment Tokenization process involves the substitution of sensitive data stored on the merchant’s point-of-sale terminals or applications with an algorithmically generated number called a token that is sent to the merchant’s acquiring bank when submitting credit card transactions for processing.
The actual bank account number is held safe in a secure token vault and kept separate from other personal and financial information about customers, ensuring that the bank account number cannot be used by hackers to commit fraud.
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Payment Tokenization Definition
Payment Tokenization, also called card tokenization, is a process in which a sensitive credit card number is replaced with a unique and random value generated by a special algorithm.
Data Tokens are programmable tokens that you create in a special programming language.
Payment tokens, on the other hand, are pre-existing tokens that a token provider has created and made available for purchase.
These tokens represent bank account numbers and expiration dates, Another primary difference between data and payment tokens is how they are used.
All of Stripe’s data tokens can be used directly to access your customer’s information. Stripe’s payment tokens can only be used by your application to pay charges submitted to Stripe this is how payment Tokenization Work.
It doesn’t make sense to expose these tokens to your customers, as they only have value within your application as part of an API call.
Payment tokens are usually only used for a limited period of time and stored in a secure vault. They can be configured to expire after a short period of time (for example 24 hours).
This is done to prevent attacks like Card Not Present or Man-in-the-Middle Attacks, which involve using sensitive data gathered in order to charge fraudulent purchases on a credit card.
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Payment Tokenization Risks
For all its promises, there are a few risks associated with payment tokenization, The most serious risk is that tokenization may not be adopted by consumers or retailers, which could leave merchants exposed to potential fraud from traditional card-present transactions.
This risk can largely be mitigated through education and social marketing efforts by government bodies and payment providers, who can ensure that consumers understand how does payment Tokenization Work and what protections they have in place.
However, these efforts will require investment to succeed over time, If tokenization isn’t accepted by merchants and consumers, it will remain an unused tool without any benefit no one will want it.
Security Benefits of Payment Tokenization
There are a number of benefits to tokenization, but one of its greatest advantages is that it provides more security for cardholders and merchant environments.
Because token vault data is an alphanumeric string, it’s nearly impossible to determine if it correlates with a real account number.
A hacker would have no choice but to guess what your vault data is, and at thousands of guesses per second, he or she would still run out of time before being able to obtain any kind of results.
One of the primary risks when processing payments online is a fraud: fraudulent payments made using lost/stolen credit cards by unsuspecting victims.
By protecting your customer’s sensitive information in a token vault -including their name, address, date of birth, and social security numbers you significantly decrease risk exposure should these records be accessed by cybercriminals.
As tokens aren’t actual credit card numbers they don’t show up on a merchant’s statement saving them from paying excessive fees!
When is Payment Tokenization Needed?
Businesses that accept sensitive payments online may be vulnerable to fraud because they can’t prevent third parties from gaining access to their customer’s private data.
Instead of using actual credit card numbers, businesses should tokenize them using a service like Amazon Lex.
This service allows businesses to tokenize credit card information for their customers and store it securely in a vault.
So if someone were to get access to your database, they wouldn’t have your customer’s full banking information.
When businesses don’t tokenize their information, hackers may gain access through some kind of security breach or man-in-the-middle attack.
They might steal your database containing thousands of records containing each person’s credit card number directly on the file.
This is How payment Tokenization Work can secure the ways of transaction and reduce the efforts of customers.
Types of Payment Tokens
This section of your token overview should include a table or chart listing out examples of each type of token, Include information on what they are, how they are generated, and when they are used.
The most common types of tokenization systems today are as follows: Dynamic (or random) tokens are given a new value for every transaction.
Dynamic tokens create two levels of security to further protect cardholders’ data, as an encrypted value is used by a merchant in their point-of-sale system and a separate one is transmitted to their bank.
Static tokens use static numbers that remain valid for multiple transactions, creating another layer of security on top of dynamic token systems.
In either case, though, only these non-sensitive values are provided to merchants; they cannot view or access individual account numbers.
Payment Tokens VS Data Tokens
Tokens are generated and issued to customers by either a merchant or third-party payment processor.
While they can be used like regular credit card numbers, they are not actually connected to any financial information of a specific account holder; instead, they’re issued in their place.
Data tokens (also called digital tokens) are used to store and encrypt sensitive information such as government ID numbers or driver’s license data.
This type of token is designed to help prevent identity theft and fraud. One popular example of payment tokenization is Apple Pay.
If you use Apple Pay, your financial information never enters your iPhone during transactions – rather, an encrypted number replaces it that doesn’t have access to your bank account information or stored credit cards.
The encrypted token is then transmitted via NFC to pay terminals at retail stores where it becomes readable by merchants but cannot be altered due to its encryption features.
Originators, Acquirers, Processors, and Subscribers (in Payment Tokenisation)
Let’s start with a quick but important note: Payment tokenization is a feature of how payments work, not an individual entity in and of itself.
Because payment tokenization is essentially behind-the-scenes, it can be easy to forget that there are many entities involved in any given transaction that uses tokens as a form of protection for sensitive data.
It’s not always simple in fact, sometimes it’s downright complicated but we want to give you a basic overview of how payments flow through these different participants (and between these different participants).
If you want more detail on one particular participant or another, just let us know in your comments below!
Payment Tokenisation Ecosystem [Merchant Acquirer Processor Merchant Bank Cardholder]
In simple terms, tokenization is a safe way to secure sensitive information and pay with that info.
As a customer, you may also interact with tokenized data, However, you will never actually see or use your actual card data.
Instead, you are given a token that represents your card data when paying for products or services online and in-store.
[Merchant Acquirer Processor Merchant Bank Cardholder]: In simple terms, tokenization is a safe way to secure sensitive information and pay with that info.
As a customer, you may also interact with tokenized data. However, you will never actually see or use your actual card data.
Payment Tokenisation vs Full EMV Migration
With merchants waiting for more secure chip cards to make their way through card networks, many are opting to rely on a form of tokenization called Payment Tokens.
This method of tokenization is an important security measure and has been adopted by several big names in commerce: Wal-Mart Stores Inc., Priceline Group Inc., Orbitz Worldwide Inc., and Home Depot Inc.
As these companies have shown, implementing payment tokens can provide peace of mind as you move toward greater data protection.
Forrester Research estimates that U.S.-based online transactions account for roughly $1 trillion annually and cyberattacks cost businesses billions of dollars each year due to stolen data breaches and fraud losses in compromised credit cards systems.
And it doesn’t look like things will be getting better anytime soon; projections from Juniper Research estimate that cybercrime costs could top $2 trillion by 2019.
Payment Tokenisation Work for Cards
Many people use a credit card to pay for goods and services online. Payment tokenization protects credit card information in transactions by substituting actual credit card data with an algorithmically generated number called a token.
What are two ways that sensitive credit card data is protected when it’s tokenized? Tokens can be either single-use or multi-use. Which kind of token would you select for your business, and why?
Payment tokenization is a way to protect sensitive data by replacing it with an algorithmically generated number called a token.
Payment tokens are held in a token vault by an Issuer, or Payment Service Provider (PSP).
A token vault is an independent, PCI-compliant system where payment information is stored.
The use of tokens has become increasingly popular for both card-present and card-not-present transactions.
Nitin is a professional data Engineer, Who has a Post Graduation in Data Science and Analytics and working in the healthcare sector. Experts in Data analysis, Machine learning, AI, blockchain, Data related tools, and technologies. He is the Co-founder and editor of analyticslearn.com