What is card tokenization and how does it work

Since online shopping popularity is surging, the issue of secured transactions on the web is getting more serious. Unfortunately, most virtual stores and e-commerce platforms are a breeding ground for scammy manipulations. We all know that payment security is a backbone of any thriving enterprise. But how to ensure it? Tokenization is a very thing to keep clients’ bank accounts safe from cyber attacks. 

If you’re a merchant who deals with credit card information of your customers, you’ve landed on the right page. Here we’re going to shed light on tokenization, its working principles, and the way businesses can make avail of it. So, let’s cut to the chase!

Even though “Tokenization” word sounds like a rocket science term, the concept of it isn’t hard. When a buyer enters their card number, CVC-code, address and other private details on the website, they potentially lay open to black hats. If the data is somehow stolen, the consequences may be devastating (money loss is the most obvious one). 

Just for the record: the quantity of fraudulent attacks isn’t about to fade away in the foreseeable future. As a matter of fact, roughly $25 billion was gone for a burton in 2018, and the amount of lost funds is only climbing these days. 

Merchants are in charge of storing their clients’ details for recurring billing and one-click shopping. To make things right and nip all the possible scams in the bud, e-store owners exploit tokens. What is tokenization? That is our next stop here. 

Bank card tokenization is when user’s billing details are changed into some characters (numbers, letters and symbols), named tokens. The procedure takes place at the checkout stage. Once a series of randomly generated tokens are linked to the primary account information, it can be safely processed for the current transaction and the following ones. The purpose of that process is to shield confidential data from being deciphered by hackers.

Real-life examples of tokenization use

• Subscriptions Such services as Netflix, Apple Music, audiobook apps, photo editing servers and many other platforms require repeated pays. If a customer needs to be charged automatically, tokenization gets in the game. 
• Web hosting companies Should you want your business to be present on the Internet, you turn to organizations that can post your site. They aren’t free, so you will pay for the server monthly or yearly (it depends on the arrangements you’ll make). 
• Apple Pay or Google Pay apps Every time a user saves their billing data on the device, all details are codified for future operations. Thus, people can pay with their smartphones with zero risks. However, a safe password is a must-have. 

The beauty of tokenization is that it lets customers be on the side of caution with no efforts on their part. All the harsh work is done by a card processingsystem or a tokenization service provider. As a result, sellers also don’t have to spread themselves thin by trying to keep data out of danger. They don’t even have any information but a list of numbers that were previously encoded.

How does encryption differ from tokenization

When restricted information is coded by the formula, this cryptographic process is called encryption. Sounds like tokenization? Yes, but encrypted data can be deciphered any time should you know the algorithm exploited. To put it bluntly, it isn’t that good to ward hackers off, and this tool doesn’t guarantee the ultimate data safety when tokenization ensures it no matter the breach of information.

By turning data into an alphanumeric code, tokenization serves as a useful tool to prevent fraud. The code contains randomly gathered symbols generated by a special algorithm and has nothing to do with the actual client’s information. What’s best, it can’t be decrypted until the transaction is finished. 

Long story short, let’s see the process of tokenization in 6 steps: 

• A client provides their data to initiate a transaction.
• Billing details are replaced by a token in the payment gateway API automatically, e.g. a card number 4756 9821 1223 9876 will be changed to 473bcnwuehe88347429-djsdj-i8 (an example is fictional). 
• Then the token is forwarded to the card network. The authorization takes place there. 
• When authorized, the card’s data is officially linked to the token, and it is stored in the virtual vault. 
• If there is enough money on the bank account, the transaction is allowed. Otherwise, it is rejected.  
• The last step – a merchant receives a one-of-a-kind token for future operations. And when a customer needs to be charged again, real card details won’t be used.

It goes without saying that tokenization technology comes hand in hand with a massive chunk of advantages for businesses and customers alike. Here they are:

• Better user experience. Obviously, a client will always head back to your e-commerce platform if your products/services are jim-dandy, and transactions are smooth. By using tokenization of data, you enable customers to shop at your store in a highly-protected manner. Not only will they be able to benefit from one-click or recurring payments but also be sure they are safe.  
• Reduced costs on protection. When storing users’ billing details in the form of tokens, you mitigate the chances of data leakage. Coded information will be of no use for hackers even though they manage to break into your system in an illegal fashion. Thus, you’ll steer clear of possible chargebacks caused by unauthorised transactions and expenses spent on data security. 
• 5-star reputation. It’s common knowledge that shoppers will turn their thumbs up on your business as long as their purchases will be home and hosted. Secured transactions are just as important as the products offered, but you already know that, right?

Now you might wonder how to start encoding consumers’ details. Well, the answer is as simple as that: the fastest way is to cooperate with an A-one payment aggregator, Tranzzo for instance. By trusting your enterprise to it, you will store all the needed information on your website without having actual access to it. Besides, you will be able to kill two birds with one stone. What does that mean? Every reliable aggregator meets PCI DSS, so when working with it, your business is automatically PCI compliant. 

PCI is a topic you can’t cover in a few paragraphs, but it is vital to know the basics. Every merchant who works with credit cards must conform to those standards. They are a series of specifications intended to diminish identity fraud. Tokenization is hardly the only factor mattered to obtain a coveted certificate, but it is among the crucial ones. Take Tranzzo for a spin and see how much it can foster your way in the e-commerce business. 

Should any questions arise, don’t hesitate to give us a call or contact via messenger. We are readily available to clear things up for you!