Tokenization in payments explained.

Whether you accept online payments in an ecommerce business or allow your customers to buy products and services in person using touchless transactions, how the data is transmitted from your card reader or payment gateway to the other actors in the process is hugely important.

Gaining an understanding of how payments are kept safe can help you to run your internet or brick-and-mortar business much better.

How tokenization is used to keep payments secure.

Since the beginning of human history, codes have been employed to prevent the enemy from understanding intercepted messages.

Just as it is essential to keep adversaries from learning strategic battle secrets, organizations that store and transmit sensitive customer data over the internet need a way to shield these digital details from hackers and other cybercriminals. Tokenization is one of the most effective methods of accomplishing this important goal.

How it works.

The customer payment data being transmitted from your point of sale system or payment gateway consists of the letters and digits that make up customers’ credit card payment details. This includes the card number, expiration date, and CVV security code, as well as the consumer’s full name.

When proper tokenization is in place, this series of letters and numbers is replaced with an unrelated string of digits and characters. That information (which is useless to hackers) is then used to make the payment, with the original data securely stored in a cloud-based digital repository.

In many respects, a token is similar to a poker chip that stands in as a placeholder for the customer’s payment details. In most cases, tokens are only used once, thus rendering them useless to anyone wishing to steal the “real” details.

Tokenization vs. encryption.

Although it is easy to confuse these two methods of securing data, they are actually quite different. Encryption involves mathematically changing a set of information. The difference is that the original pattern still exists in the new code.

The cipher can only be broken through the use of a key. Make sure you partner with a payments company that offers certified, point-to-point encryption.

By contrast, tokens cannot be “broken” through the use of keys and are irreversible. When you hide payment information through tokenization, only the original card tokenization system can access the customer’s primary account number so that it can be sent for authorization.

In short, this is one of the most effective ways currently available to keep data safe from theft.

The many benefits of tokenization.

Protecting the data you transmit during the payment process via tokenization brings four major benefits to your business. 

1. It reduces the risks and consequences of a data breach. If hackers gain access to your customers’ data, you can take a huge hit to your wallet and your brand. With tokenization in place, there is no actual data to steal even if hackers can gain access to your internal systems.
2. Doing so engenders customer trust. Consumers are more likely to remain loyal to your brand if you do everything in your power to keep their payment information safe.
3. It complies with the Payment Card Industry Data Security Standard (PCI DSS). Any organization that stores, manages, or transmits credit card data must demonstrate that they have taken steps to keep it safe. This is done by successfully passing a third-party audit or working with a vendor that does. Proving that you are using tokenization shows that you are protecting cardholder data, one of the main PCI DSS requirements.
4. It allows you to provide payment choice and flexibility. These days, tokenization is featured in the most popular, cutting-edge ways to pay, including transactions made online, and/or with mobile applications and digital wallets.

The bottom line is that customers want to do business with brands that take data security seriously.

Letting them know that your systems and/or those used by your third-party ecommerce platform utilize the latest in tokenization to protect their data will raise their trust level and inspire them to continue to buy your products.

3D-Secure validation: Another layer of protection for your business.

Tokenization is not the only powerful tool designed to protect customers and merchants during online shopping.

There is an additional step called 3D-Secure developed by EMVCo® that requires the customer to validate the transaction by inputting a PIN code before the payment will go through.

How does 3D-Secure work?

3D stands for the three domains necessary for the transaction: the retailer, the card issuer, and the 3DS platform that acts as an intermediary between the other two parties. The 3DS platform analyzes a buyer’s transaction to determine the authenticity of the customer’s identity.

If there is any doubt, the shopper is directed to another page where they must enter a PIN or password. At the same time, a one-time PIN is generated by the customer’s bank and sent to them. The transaction cannot go forward unless this information is entered.

Benefits of 3D-Secure.

Outfitting your website with this additional layer of security brings several advantages to your ecommerce operation.

• Reduced credit card risk. This is because you will see fewer lost payments and fewer instances of card misuse.
• Increased protection for consumers resulting in fewer problems and chargebacks.
• Cost savings for merchants due to lower instances of fraud.

Although some shoppers may complain about needing to take extra steps before a purchase can be completed, this additional authentication is now widely accepted and will likely soon become the standard for large and small websites alike.

Students of technology and ecommerce often compare the internet to the Wild West. Lax rules, criminals with few scruples, and high-stakes breaches are just a few of the characteristics they cite to back up their claims.

Fortunately, innovations such as tokenization and 3D-Secure are helping regulators make great strides in taming the internet’s lawless reputation. In the end, both buyers and sellers are benefiting from these new safeguards.

If you are not already employing these strategies directly or working with vendors who do, you and your clients may one day pay a steep price. Taking the time to integrate these tools into your digital security arsenal is a wise move and one that you should strongly consider making.