Briefly, credit card tokenization involves replacing customers’ Primary Account Number (PAN) with a series of randomly generated sequences that can pass through payment networks without exposing sensitive data. It is a highly effective data security system designed to prevent fraud and frees merchants from the responsibility of maintaining card data on their payment systems.
How it works:
Credit cards come with the cardholder name, a 16 digit PAN, an expiration date, and a security code or Card Verification Value (CVV). Any or all of this information can be tokenized, so if the account number is tokenized the information will immediately be replaced by a randomly generated token sequence of characters on the merchant’s payment system: the original PAN never enters the merchant’s payment system.
The tokenized data is transmitted to the payment processor where it is de-tokenized for authorization. The token is only readable by the payment processor and has no value to any third party who might gain access to the information.
The randomly generated token sequence is valid only for a single merchant’s transaction and can never be replicated to initiate payment with any other merchant, so tokenization greatly reduces the likelihood of fraud.
What are the benefits?
The most obvious benefit of tokenization is securing individual card data for internal and external threats. Because payment processors are only partly able to decode tokenized information, it is an extremely effective buffer against credit card fraud.
But the benefits of tokenization are not only for cardholders. Merchants benefit by not having to invest in a myriad of resources to secure their cards payment infrastructure. Tokenization makes the merchant’s entire card payment system more PCI complaint because you are not storing as much sensitive financial data on your own system, which means that you don’t have to worry about security relating to how that data is stored.
For cardholders and merchants alike, tokenization opens the doorway to Credential on File (CoF) e-commerce. The merchant can securely store cardholder information online for future or recurring purchases, but not as static data.
Another benefit of the tokenization process is that it can be used for any type of sensitive information that is personally identifiable. It can be used to protect financial data and personal information like customer records, employee records, any passwords, email addresses, etc.
Where is it going?
Payment security is constantly evolving and is a permanent priority in the card payment environment. While EMV and NFC technology are the current norms, more and more digital channels are being introduced. Tokenization and CoF provide secure, convenient payment options for both cardholders and merchants and are a secure option for engaging in cashless transactions.
For more information about credit card tokenization and how it works, or to sign up for a merchant account, please call (888) 924-2743 or go to Charge.com.