End-to-end encryption has been providing security during the transaction of payments for some time now. While it is handy in several instances, it can be bypassed, as evidenced by the different cases of data breaches across the world. For the specified reason, there has been an ever-increasing need for better security measures, in this case, tokenization.
So, what exactly is tokenization? In this context (data security), it is the replacement of a sensitive piece of information with a non-sensitive equivalent, called a token. The token has no value and is used as an identifier that traces back to the confidential information only via a tokenization system.
Defining Payment Tokenization
Payment tokenization is a way of securing financial data, for example, credit card details and bank information during transactions. It works like so: instead of relaying sensitive information from a user’s credit card during purchases, the data is replaced by a token that is generated instantly and randomly. The token contains anywhere between thirteen and nineteen alphanumeric characters that leave out the PAN or other details that identify the user.
What can you expect? One, the token is unique for every transaction, meaning it cannot be used in another shop for a different purchase. Two, by leveraging payment tokenization solutions, the customer data that is stored by online stores becomes worthless for hackers. Finally, data payment breaches will not affect users since none of their sensitive information is stored on servers.
How Tokenization Works
Tokenization works differently from EMV systems. It does not utilize end-to-end encryption but instead has a specified algorithm that secures the details of the cardholder, keeping them safe from anyone’s access. Below is a breakdown of the tokenization process for mobile or online payments.
- Users provide their names and credit card information.
- A token is requested from the payment service provider.
- The token request is shared with the user’s bank or account provider.
- When confirmed, the user’s PAN is substituted with a token.
- The token is utilized for permitting a purchase.
Tokenization is Suitable For?
Tokenization is suitable for any venture that leverages a subscription-based model of conducting business. It is also perfect for stores that have significant trade with their repeat buyers. The bottom line- tokenization is ideal for enterprises that seek to offer customers a smooth experience during checkouts. It is because tokens can be stored securely and utilized to allow single-click payments during future transactions.
What Can Be Tokenized?
The positive impact brought about by tokenization in enhancing payment security has led to the proliferation of an array of new methods of payments. As a result, modes such as mobile, online, wearable devices, and contactless payments have come to the fore, all capable of being tokenized.
Where is Tokenization Used?
With each passing day, tokenization becomes more and more popular, thanks to its effectiveness when it comes to enhancing the security of payments. Already, mobile payment providers such as Google Pay and Apple Pay are leveraging this revolutionary technology. Let us take a look at how each works. We will also examine tokenization in eCommerce and within applications.
Google Pay
Whenever you provide your credit card information, Google Pay develops a token. This token is what is used in place of your account number. For this reason, it becomes impossible for anyone to access your real credit card details.
Apple Pay
Upon capturing an image of your credit card and uploading it to your device (iPhone or iPad), Apple will relay the details to the bank that issued the card to you. Your bank system will then substitute your card information with random numbers (token). As such, the number on your device becomes valueless for any malicious person out to steal.
Tokenization in eCommerce
Another notable application of this tech is in eCommerce. In this scenario, tokenization comes in handy when it comes to safeguarding your shopping actions. Case in point, when you purchase furniture on IKEA.com, your details are safe since the retailer tokenizes card numbers and stores them on file. For this reason, if there is any breach, the fraudster will at best see sequences of random numbers with no meaning.
Also, it’s worth noting that a new token can be provided for each IKEA store. It means you will have varying numbers for each retail store you have shopped at. As such, if there is any security incident, all tokens given to a particular site can be canceled, keeping you from having to get another card.
Tokenization Within Applications
If you want to purchase something using an application on your phone, for example, a social networking app, and your device has a token, then the application will not access your card data. Best of all, a tokenized account will make it straightforward for you to check out since several applications will connect to your stored shipping details automatically.
Last but not least, Samsung Pay is yet another excellent example of tokenization in payment.
Key Benefits of Tokenization
Tokenization presents an array of benefits to your clients. Apart from offering top-of-the-class security during payment transactions, it offers the following pros.
Boosts Consumer Trust
World over, consumers will buy from an establishment where they are sure that their details are safeguarded. By implementing this tech, the credit card information is kept safe always, which facilitates return business. And with subsequent issue-free transactions, trust between customers and vendors is cultivated.
Mitigates the Damage from Data Breaches
Data breaches have proven to be costly for businesses. Factually, the average total cost of one is USD 3.92 million. With tokenization, however, you can be sure that when unscrupulous persons get into a server, no customer information can be used to implement malicious activities.
Secures Other Useful Information
This tech does not protect your credit card details alone. It goes on further to shield your identity since no one can backtrack the information on your card to you.
It Works Best with Current Technologies
Tokenization can be quickly adopted into new payment technologies. An example is NFC, where it can bring about extra security during transactions.
The Current State in Token Niche
According to a Research and Markets report, the worldwide tokenization market is projected to reach USD 2.25 billion by 2020. This growth will be at CAGR) of 22.4%. Why the trend? There is an ever-increasing need to manage the sensitive information customers provide, coupled with a need to meet strict compliances. Also, tokenization is being widely adopted since it minimizes operational costs, streamlines management actions, and needs way less capital to set up.
As is stands, given that tokenization solutions substitute payment card information with distinct tokens, it allows companies to comply with the PCI DSS. Apart from that, it will comply with HIPAA.
Prospects of Tokenization
Given the security benefit of tokenization and its unmatched importance in the payment transactions sector, it is safe to predict a growth in this technology. Consequently, businesses should consider developing payment tokenization systems to ensure that they safeguard the information of their consumers, while also navigating towards the future effectively.
Final Thoughts
Tokenization has brought about a new standard for emerging payment techs to improve on. As you have learned, this technology offers a quick, effective, and safe payment mechanism. For these reasons, it allows brands to build excellent relationships with customers, thus fostering economic growth. Remember, even though rapid developments (when it comes to payment solutions) keep emerging by the day, security is always an essential factor. So, if you want to succeed, be sure to implement tokenization. It is a tried-and-tested way of boosting the security of payments.