The basics of tokenization: What is a token?
Depending on the context, the term "token" has an increasing number of different meanings, but in general "tokenization" refers to a form of protection in data security. Tokenization is the security process used to replace sensitive bank card data with a non-sensitive identification code called a "token". This security token is useless on its own, but decrypted in the right way, it allows access to that data again following protocols with maximum security.
Card tokenization is the technological way of keeping customers' bank details safe and secure when making online payments, ensuring their privacy on the Internet.
In an increasingly crowded online payment landscape, a token is the solution for customers to choose between various payment methods without having to repeatedly upload their data each time. Recurring payment services store data securely under a "token", which increases confidence in online payments and peace of mind for customers.
Tokenization guarantees data security at all times as it is undecipherable.
How does tokenization work?
Card tokenization begins by creating a random ID number at the time of the transaction. An algorithmic system creates this unique code called a token for each card, which is renewed each time the card is inserted, ensuring its security for each new transaction.
Tokenization reduces the number of systems that can come into contact with bank details during the online payment process, which increases the levels of security. E-commerce businesses can store card data in tokenized form for future purchases, saving time for both merchants and shoppers, while maintaining maximum security. In the event of an attack or hack, the tokenized data is useless against any threat, as access to a security token (tokenized data) by hackers poses no danger. Tokenization guarantees data security at all times because it is unbreakable.
The aim of tokenization is to create a secure environment for banking data used in online payments. This way, e-commerce businesses don't have to store sensitive data such as PAN (personalized account number), cardholder name or expiration date. If they do, companies that process, transmit and store bank card data must comply with PCI certification, which authorizes them to store this type of data securely. Since being backed by this regulation is a complex process, the use of tokens is the best way to delegate this work to payment gateways with the highest level of guarantee.
The tokenization process
Although it seems like a long and complex process, tokenization takes only a few seconds in real time during the transaction, which means that there is no impediment or extra effort involved in concluding a tokenized payment. It can be summarized in the following steps:
1.Procurement: to process the purchase online, the customer enters their bank details in the store's checkout, where they include their PAN.
2.Tokenization: the card data is replaced with a token (a random, undecipherable code created by an algorithm).
3.Validation: the data is sent in an encrypted format (a token) to the payment processor and de-tokenized with another algorithm that receives validation from the customer's bank.
4.Authorization: With the previous validation, the data that is sent back to the seller to start the payment processing.
The difference between tokenization and encryption
Tokenization is the data protection system that has been gaining the most momentum in the last year, but there are many other methods that e-commerce businesses can use to process online payments securely, such as encryption or field encryption. All of them protect online data, but use different technologies. Meaning, they all have the same goal: to encrypt sensitive data to make online payments more secure. However, it is tokenization that is taking center stage when it comes to ensuring privacy on the Internet when processing online payments.
While tokenization will never be encrypted with a mathematical code, encryption is mathematically reversible with the right decryption key. On the other hand, a token by itself is useless for hackers, therefore it is the safest option against possible data leaks, as encrypted data can be useful for hackers as it is able to be decoded.
Examples of tokenization
To have more clarity on the subject, we can see look at some specific cases where tokenization is fundamental in the security of online payments, and the protection of sensitive data:
When processing an online payment, the customer finds it easier if they only have to make a single step to process the transaction. With the tokenization of bank cards, the checkout is completed with a single click from the second purchase. A faster, simpler and more secure shopping experience helps to increase user conversion rates and, therefore, their satisfaction with the company.
Subscriptions and recurring payments
When a company offers a subscription-based purchasing model, the administration is drastically reduced thanks to tokenized payment. Customer purchase data is securely stored in the system in the form of a token. This is an advantage for both the company and the customer, as neither has to worry about issuing a new payment each month.
E-wallet or mobile wallets
Another one of the most popular payment methods is mobile payment with wallets or e-wallet. The most known mobile payments are Apple Pay and Google Pay. They all use tokenization technology so that it is possible to purchase through the mobile without the need of a credit card. So, the only way of using this form of payment is through a token.
What is the function of a token in an e-commerce business?
As we have seen in the examples, tokenization of payments is a fundamental part of online and e-commerce business transactions. For this reason, any company that sells its services or products online has to secure its customers' data using the appropriate technologies. In this case, tokenization is the most secure and cost-effective option in the long run.
Benefits of tokenization for e-commerce businesses
Having a tokenization system means great benefits both for the company that sells online and for the customers who make their purchases. The e-commerce business, mainly, saves time, administration and extra costs; and for its part, the customer also saves time, gains confidence and above all builds up their loyalty to the business thanks to the minimal steps they have to do to finalize their purchase.
Among many others, the benefits of generating a security token to process payments online are:
Any business that processes, transmits and stores bank card data must comply with the PCI DSS regulations, and to this end, tokenization is one of the main ways to protect data, and to facilitate compliance.
Data in the form of tokens are protected against all kinds of online threats and attacks because the token itself has no value. Without this protection, businesses are exposed to great legal risks.
Given the high risks users are exposed to when making online purchases by entering their data, ensuring a secure payment system is an effective way to increase their confidence in an online business.
On many occasions, the checkout of an e-commerce business remains unfinished due to the frustration generated by completing all the data that is requested. If the sale is made with a token stored in the system, the purchase will be immediate and more convenient, which increases the conversion rates of the business.
Tokenization for your e-commerce business
Tokenization systems have become an essential part of most digital companies. It is important to have knowledge of this security method, as it is gradually gaining ground not only in the financial field, but also in many other areas where a real object can be converted into a digital one through a token. For this reason, converting the physical data of a bank card into a digital asset such as a token is a breakthrough in terms of timeliness and security.