All stakeholders are emphasizing that customers get their credit card information tokenized. But what is credit card tokenization? What effect does it have on the customers and merchants? Read everything your business needs to know about credit card tokenization here.

What is Credit Card Tokenization?

When making an online payment using your credit card, you need to enter your credit card details such as the card number, owner’s name, expiry date and CVV. The merchant then stores these details using masking and other security measures.

In the process of tokenization, the number of your card is replaced by a random token number which the banks and the payment processors use to make payments to and from your account. Thus, card tokenization is the process that protects sensitive data by replacing it with a token or a number which is generated algorithmically.

How Does Credit Card Tokenization Work?

Credit card tokenization works by substituting the customer's sensitive data with a one-time alphanumeric ID, which does not have any connection to the account owner. This token is then used to retrieve and transmit the customer's credit card information safely.

The tokens do not contain sensitive customer data but navigational codes that take the banks to the customer’s data. They are generated using mathematical algorithms and thus cannot be reversed once created. They can only be accessed and opened after a successful transaction and have no value outside the system.

Credit Card Tokenization Works In The Following Steps-

1. The cardholder initiates the transaction by entering their sensitive credit card data.

2. The merchant receives the credit card information in the form of a token.

3. The receiver transmits the token for authorization by the credit card networks.

4. After authorization, the bank matches the customer data stored in the bank's virtual vaults with the customer's account number.

5. Then, the bank verifies the funds and accordingly allows or declines the transaction.

6. If the authorization is successful, the bank returns the unique token to the merchant for the current and future transactions.

This whole process occurs behind the scenes through the technology of the bank and the merchants. And the customers need not do anything additional.

Why Is It Important?

Credit card tokenization enhances the security of the payments made. It is an efficient way to protect the information of your customer’s credit cards from internal and external threats and problems.

The generated tokens can only be read by the payment processor and cannot be monetized or used in any other form. Therefore, if a hacker or a thief tries to breach the security and unfortunately even gets access to the tokens, they cannot use this information to commit a cybercrime.

With the help of card tokenization, merchants can comply with PCI DSS without making hefty security expenses or generating liabilities. Also, the merchants can remove the customers' credit card information from their platform so that the risk of a data breach is reduced significantly.

Therefore, credit card tokenization alleviates the additional expenses incurred by the merchants and payment gateways on data protection. In addition, card tokenization technology can also protect other sensitive business data such as passwords, addresses, confidential files, and accounts etc.

Examples of Credit Card Tokenization

Tokenization of credit cards works on multiple channels, from mobile applications to call canter solutions and eCommerce platforms. Some of which tokenization can be provided in various channels are mentioned below.

● Ecommerce In the sphere of eCommerce, card tokenization helps safeguard the online shopping activities of the customers. For each retailer, a new token number can be generated so that the customers can have a different code or data at various stores or online shopping places. The criminals can see nothing more than a code they cannot use, even if they breach the system.

● Within Applications Customers tend to make many purchases from within the apps, such as clothes, books, tickets etc. Most of these apps have access to their credit card details. If they use a tokenized account, they can quickly check out on the purchases with minimal risk of fraud or theft, as the apps will directly link to the stored shipping information.

● Contact Centers Some call centers work to accept payments made by the customers over the phone using point-to-point encryption, dual-tone multifrequency and interactive voice response to take in the credit card information. In addition, tokenizing sensitive payment data helps remove credit card information from the internal system to ensure the security of the data.

Benefits of Card Tokenization

While we all know that credit card tokenization can help secure customers' data in many ways, let us dive into the benefits of tokenization.

1.)Enhanced safety The tokens generated for each merchant and transaction are unique. This enhances the overall security of card-based transactions and eliminates the risk of storing card details online.

However, only the last four digits of your card are available online after card tokenization, and you have to re-tokenize your card in case it is lost or stolen, or you get a new card.

2.)Faster checkouts Tokenising your credit cards increases the speed of your checkouts, and you won't need to enter your card number for every purchase you make. Instead, you can save your card details once and complete the transaction innumerable times.

3.)Reduction in false declines Whenever the bank, due to some reason, believes that your transaction is a fraud, they decline it. Using tokens, however, ensures the security of the highest order and thus reduces the chances of false declines.

4. Easier card management Using this process, you can keep track of all your cards and the merchants they are tokenized with.

5. Physical card not required While making any purchase, you need not have your card physically present with you, thanks to tokenization!

6. Other benefits Some credit cards also offer exclusive benefits to customers when they tokenize their credit cards.

Tokenization vs Encryption

Both tokenization and encryption are exceptional tools for combating credit card fraud. However, they are not the same thing.

Encryption is the cryptography of your credit card information and safeguards sensitive data by converting it into unreadable code. Here, every number and letter on the card is encrypted and disguised with a different number or letter, which is chosen automatically by a sophisticated encryption algorithm. In the end, this information is decrypted with the help of a key or a password.

The significant difference between encryption and tokenization is that encryption is reversible while card tokenization is not. This is because the algorithm behind an encryption is known, and thus it can be returned to its original form at any point.

Also, card tokenization is a more robust security measure than encryption, which is breakable. The PCI council counts encryption as sensitive, and thus, complying with encryption is more expensive and tedious compared to tokenization.

Another difference between the two is that encryption is a sturdy data protection method in cases of transactions where the card is present physically. On the contrary, tokenization is a better form of protection in payments where the card is not physically present. However, encryption and tokenization must work together to ensure the most stringent security for sensitive card data and comply with the PCI DSS requirements.

Errors Related To Card Tokenization

Sometimes, there occurs a situation where the card is not tokenized while performing tokenization of multiple forms such as Tokenization in Request, Universal Tokenization or Tokenization in Response. In such cases, the PCI booking will pass on the card details along with the cause of the failure of card tokenization in the form of a particular message-

X-pciBooking-Tokenization-Errors.

In a separate case where the card was tokenized, but the information did not match the remaining card details, the PCI booking adds a message-

X-pciBooking-Tokenization-Warnings.

Some possible error messages and their meanings are mentioned below.

● Luhn error- The card number does not match the format of the Luhn algorithm meaning the number is too short or big.

● Expired card- The expiry date of the card has passed.

● The number has less than 12 digits- The card number entered is too short to be that of a valid card.

● Number longer than 22 characters- The card number entered is too long to be that of a valid card.

Apart from these, there are a few tokenization warnings that the customer is informed of. These issues do not stop the PCI booking system from tokenizing the card, but they might be a problem. Some warning messages are-

● Card type validation message- the card type does not correspond to the card number.

● Card type is missing- there is no card type in the request.

Final Words

Credit card tokenization is the most efficient and tech-friendly way of modern times that helps you secure your credit card details online. In today’s world, when most of the payments we make are online, thefts and frauds have become easy for criminals and credit card tokenization is your way out.

So, did you get your credit card tokenized yet? If the answer is no, why not try Billsby today! We tokenize all payment information that is captured and stored by us.