What is a token and how does payment tokenization work?


Published 06/07/2021 · 3 min read

"I want to make my sensitive data unseen."

It's not magic, it's tokenization. Have you ever read about the privacy and security of eCommerce payments? We make it easy for you, you can start with the PCI DSS regulation, which regulates the management and storage of data associated with payment cards.

Visit any page dealing with regulatory updates and you will see that asset tokenization has become a key point in ensuring the security of card payments. In the midst of an ever-expanding landscape of online payment methods, the biggest advantage this tool offers to the user is the quick linking of their card to digital payment services. And for the merchant, it offers ease, trust and security in their customers’ transactions with the online store.

This is a first approach, but there is a whole world underneath, so don't stay on the surface!

What is a token in the payments ecosystem?

Many would say it is a cryptocurrency. Others, a digital asset. Well, a cryptocurrency is a digital asset. Let’s be clear!

A token is a random asset or value that goes securely through the network to process payments without exposing bank card data. For a long time, this term was linked to early financial systems, where its main function was to replace real currency and maintain operational capacity. An example? Chips in a casino.

However, beyond the financial relationship for which these tokens are created, they have no value. In other words, in-game casino chips can be exchanged for money, but outside the game they are worthless. The ultimate purpose is to replace or represent a specific value, which is the basis of payment tokenization.

Let's see how it works!

What is asset tokenization and what is it for?

Tokenization of payments, assets or cards. Whatever you call it, the goal remains the same.

Payment tokenization is a system that replaces sensitive data on a bank card with an encrypted, unique and identifying code called a token. It is used during the digital transaction in such a way that the exposure of the real data is eliminated when making an eCommerce transaction.

From its origins, tokenization was driven by the growth of new business models created by the digital economy. They brought numerous advantages, but new ways of protecting consumer data from fraud and other chargebacks during checkout had to be implemented.

One of these changes has been asset tokenization, where the account number is protected under an encryption system that replaces the information during the transaction. In other words, if one of your customers buys a product in your online store and you have a tokenized system, the data sent to the payment card network is not that of the card itself, but a token or substitute. This is therefore a very secure way to carry out transactions.

How does the tokenization process work?

Card tokenization is simple if you have a trusted provider to support you throughout the process. The stages that tokenization goes through in a transaction are:

  • Provisioning, where the user has a token linked to their card. They register their details with the merchant where they wish to pay.
  • Tokenization. In this process, the PAN number is converted into a code called a token. This number is stored in encrypted form, is unique and replaces the real number during the transaction. The token is stored in the eCommerce through which the payment is to be made, while the actual data remains protected.
  • Validation, the token is sent to the credit card network to process the payment. The network itself decrypts the data to obtain the real information, send it to the bank and receive validation from the financial institution.
  • Authorisation once the validation of the transaction has been received.

For the first purchase, the card and payment details are sent to the PSP. Afterward, it is confirmed by the tokenized card ID. However, the tokenized payment details are sent to the PSP on subsequent payments, and the transaction is automatically confirmed.

It's fast, easy and secure!

8 Advantages of Card Tokenization in Ecommerce

In a nutshell, this process is about replacing sensitive data with non-sensitive data. In the payments industry, this process is implemented to protect the PAN (Personal Account Number) on customers' cards.

Its main advantages are:

  1. Increased security. If a fraudster managed to steal the tokenized payment data, he would not be able to use the stolen tokens to pay online. Why? Because the token cannot be linked to the payment data securely stored by the partner.
  2. Cost savings. The costs associated with non-compliance are reduced, as tokenization ensures that sensitive information is handled correctly.
  3. One-click payments. It is much faster and more convenient for consumers, thus improving their shopping experience with the online store.
  4. Chargebacks are removed. Not only the possibility of fraud in your business but also the duplication of customer data in payments.
  5. Data protection. The business increases the chances of improving its data protection standards by storing tokens and not sensitive card data.
  6. Greater convenience and immediacy. Tokenized payment is a fast, convenient and secure process.
  7. It avoids controls. Thanks to implementing this tool, eCommerce does not need to implement other controls associated with sensitive data. What's more, the token itself is already considered confidential data (although it is basically just a substitute).
  8. Diversity. Tokens can be generated for more secure payments in any type of virtual wallet, physical or electronic merchants.

Do you want to learn more about asset tokenization for your business? Contact us without any obligation.

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