Tokenization is the process of replacing a sensitive data element with an algorithmically generated value, or token. Credit card tokenization is a specific type of tokenization that is used to protect credit card information.
When a credit card number is tokenized, the actual credit card number is replaced with a unique identifier, or token. This token can be used to process payments, but the credit card number is not exposed. This protects the credit card number from being compromised if the system is hacked or breached.
How Does Credit Card Tokenization Work?
Credit card tokenization works by creating a token that is linked to a specific credit card number. When a purchase is made, the token is used instead of the credit card number. This makes it impossible for hackers to steal credit card information.
Before any transaction can be run on a tokenized credit card, it must be validated with the payment processor or merchant account. This occurs automatically during each transaction behind-the-scenes. Payment gateways and processors will work with the tokenization provider to ensure that each transaction is authorized.
What are the Benefits of Credit Card Tokenization?
There are several benefits of credit card tokenization, including:
- Increased security – Credit card tokenization protects credit card numbers from being compromised in the event of a system breach. This helps to reduce the risk of identity theft and fraud.
- Reduced PCI compliance requirements – When credit card numbers are tokenized, merchants are not required to comply with the Payment Card Industry Data Security Standard (PCI DSS). This can save businesses time and money.
- Simplified payments – Tokenization makes it easy for customers to make purchases, as they no longer need to enter their credit card number. This can increase sales and improve customer satisfaction.
How Does Tokenization Affect Customers?
Customers will not typically notice any difference when their credit card is tokenized. All of the behind-the-scenes work is handled by the payment gateway or processor. The only thing that customers will see is a simple purchase process that is easy and convenient.
Are There Any Risks Involved with Credit Card Tokenization?
Credit card tokenization does involve some risk, as tokens can be stolen or compromised. However, this is mitigated by the fact that tokens are linked to specific credit card numbers. This means that if a token is compromised, the credit card number can be revoked and replaced.
How Does a Customer Get a Token?
Customers do not need to take any action to get a token. The tokenization process occurs automatically behind-the-scenes. When a customer makes a purchase, the token is used instead of the credit card number.
Are There Any Disadvantages of Tokenization?
One disadvantage of credit card tokenization is that it will only work with specific browsers. Since the system behind tokenization does not support certain encryption protocols, some browsers may not be able to process transactions. This typically only affects users on macOS or Linux. Customers who are unable to make a purchase using their browser can always use an alternate payment method.
By understanding what credit card tokenization is and how it works, businesses can make informed decisions about whether or not to adopt this technology. Tokenization provides increased security and reduced PCI compliance requirements, making it a valuable tool for businesses of all sizes.