Handling sensitive customer data is a nerve-racking experience for any business, primarily if you rely on recurring payments. In this blog, we’ll define payment tokenization and explain why it’s become a popular way for companies to secure digital payment information.
What is payment tokenization?
Tokenization is the process of replacing sensitive data with non-sensitive data. Because payment data is processed digitally, it is an effective way to ensure that it is protected from criminal attempts such as payment fraud, cyber attacks, or data breaches.
To put it simply, “tokenize” means substituting or transforming something into something else. By no means is tokenization a novel concept. Tokenization provides merchants with a significant security advantage when accepting online payments.
Tokenization makes PCI DSS compliance far easier because digital payment information is never available during the transaction. Because tokenized data is entirely randomized and contains no accurate data, there is no risk of data loss or theft—even in the event of a data leak.
The need for increased security measures grows as the world becomes more digitized. That is likely why the tokenization market is expected to reach $2.7 billion by 2028. (https://reports.valuates.com/)
Tokenizing data protects credit card and bank account numbers in a virtual vault, allowing organizations to transmit data over wireless networks safely. Tokenization is only effective if organizations use a payment gateway to store sensitive data securely.
A payment gateway is an e-commerce application provider’s merchant service that allows direct payments or credit card processing. This gateway securely stores credit card numbers and generates a random token.
Also, check out – What is VOD
How does tokenization work?
Tokenization of credit cards replaces sensitive customer data with a one-time alphanumeric ID that has no value or connection to the account’s owner.
This randomly generated token is used to securely access, pass, transmit, and retrieve credit card information from customers. Here is how tokenized credit card transactions work:
Step 1: The cardholder initiates the transaction and enters sensitive credit card information. The merchant-acquiring bank receives credit card information in the form of a token.
STEP 2: The token is sent to the credit card networks for authorization by the acquirer.
Step 3: When the customer’s data is authorized, it is stored in the bank’s secure virtual vaults, and the token is matched to the customer’s account number.
Step 4: The bank verifies the funds and approves or denies the transaction.
Let us dive into the topic to garner more valuable insights:
- Collect payment details: The customer provides their payment information in the first step of the tokenization process. It can be accomplished via an online checkout process or a POS system. The procedure is the same whether the transaction is conducted online, via an eCommerce payment gateway, or in person via a point-of-sale system.
- Generate the token: After entering payment information, the checkout platform or the bank generates the corresponding alphanumeric ID or “token.”
- Send token to the payment processor: The token is encrypted before being transmitted to the merchant’s payment processor. Meanwhile, the primary payment information is kept safe in the payment gateway’s/bank’s “vault.” It is also how a payment processor can connect the token to the original payment data. Other pertinent information is attached to the token during this process. It can include things like the type of payment wallet used or the identity of the wallet’s holder.
- Encrypt the token, and notify the relevant parties: When the merchant’s payment provider receives the encrypted token, the information is encrypted again before being sent to the corresponding network for verification. If the payment is approved, confirmation of the completed transaction is sent to all parties involved. The merchant, the payment processor, and the customer are all included.
Tokenization vs Encryption
While both are practical tools for combating credit card fraud, tokenization and encryption are frequently confused. So, what exactly is the distinction between tokenization and encryption?
Encryption is a type of cryptography that converts sensitive data into unreadable code. Each number, letter, and space on a card is disguised by a different one chosen by a system based on a complex encryption algorithm.
In the end, the encoded data should be decrypted using the key or password. Encryption is one of the most effective card data protection methods for transactions where the card is physically present.
Nonetheless, tokenization provides significantly better protection when it comes to payments where the card is not current.
Also. check out – What is ICR Technology?
Key benefits of payment tokenization
Tokenization ensures and guarantees the safety and security of customer data. In the case of tokenized transactions, the customer can be confident that their information is completely secure. Continue reading to learn about some of the benefits of payment tokenization.
- Increased security: Because payment tokenization prevents unauthorized parties from accessing payment-related information, businesses that use tokenized payments end up providing a secure platform for customers to conduct monetary transactions with the business. As a result, payment tokenization offers a high level of security within the organization. It also ensures the safety of the company’s employees.
- Enhanced customer loyalty: Businesses that choose to tokenize payments can ensure safe and secure transactions for their customers. Customers’ confidence and trust levels rise, as a result, providing them with a sense of security. It can lead to increased customer loyalty.
- Enabling one-time click payments for customers: Tokenization enables merchants to offer customers the option of securely saving their payment information so that they do not have to re-enter it the next time they make a purchase. One-click payments increase conversion at the checkout page by streamlining customer payment processes.
Is payment tokenization right for your business?
Payment tokenization is appropriate for any business that wishes to enhance the security of its transactions, whether they are processed online or in person. It’s an efficient way to build customer trust while avoiding costly data breaches or cybersecurity issues.
It’s also a proactive way to build trust and a streamlined checkout process that customers can rely on for secure transactions.
NTT DATA Payments and Services offers secure and seamless payment solutions and the ability to track payments in real time through our robust Merchant console.
Payment tokenization plays a pivotal role in securing transactions and hence improves business performance by being the catalyst for streamlined processes and avoiding data breaches. Payment tokenization enables small and medium-sized businesses to protect sensitive customer data by integrating with secured payment gateways.
BuzzInfoMedia is an all in one spot to bring you the latest and trending blogs on Marketing, Health, Business, Technology, and more. We give our best to provide you with fresh and accurate information on different topics.