Card tokenization is a process of substituting personal cardholder information with a random series of numbers, letters, and symbols to protect the cardholder from theft and fraud on the merchant level. Card tokenization protects:
- Cardholder name, address, and other personal information
- Card number
- Expiration date
- Account number
- Bank name and routing number
Tokens apply to card information automatically as customers complete transactions through your payment gateway. Every token is unique and doesn’t correlate in any way to the customer’s information, making it secure and safe from hackers. Even if a customer uses one card across many different sites, each company receives a unique token that functions for that account to ensure maximum security.
This method of protection applies to merchant transactions since businesses face a high risk of data breaches. This helps ensure you can effectively protect client and customer information while still promising quality care and services.
How Does Card Tokenization Work?
Card tokenization begins with the customer starting a transaction with your company. After entering their personal information, your company’s payment gateway transforms their information into a token to protect them. Your company’s bank receives the information in the form of a token, where it then goes through the steps to verify and validate that the token belongs to a real account and the customer opened a transaction with your company.
Once the bank matches the token and the account, it stores your customer’s personal information in secure vaults, where it is safe from cyberattacks. Like any standard customer transaction, the bank accepts or denies the transaction based on their account information and funds.
After the transaction is complete, the bank gives the token to your company, where you can use it in future dealings with that customer. Because only the bank has the ability to match that token with its account, your customer’s personal information is safe from breach attempts from hackers and any internal system crashes.
Overall, card tokenization is going to the arcade and using arcade tokens. Kids use real money to pay for tokens, but they can only use those tokens at that venue. The arcade doesn’t have access to their funds or personal information. Instead, the token machines have the power to convert money into tokens for both parties. The tokens only apply to that specific arcade, with other arcades requiring their specific tokens to play games and receive prizes.
The Token Life Cycle
When your company uses card tokenization, each token has a life cycle that determines its user status. There are three stages in the token life cycle, and companies that use card tokenization determine which step a token is in:
- Requested: When a customer begins their first transaction with a company, they start the process to request a card token for that company. Because the customer receives a unique token for each company they visit, even for the same card, the request stage is where card tokenization systems generate the token they can use.
- Active: During this stage, the token is active. The company can continue to use this token to access their customer’s personal cardholder information for any future transactions the client has with the business. Because companies only need one token per account, the client doesn’t need to go through the request phase for that card again.
- Ended: Card tokenization can end for many reasons. A card can expire, or a customer can close the account they are using. Since the token correlates to an account and a corresponding card, for the token to be valid, it needs to link to an active account and card. If there are issues with the card or account, the card tokenization system will end or suspend the token until further notice.
The card token life cycle can help you and your customers best understand the card tokenization process, as well as what it requires from your customer, like up-to-date payment methods, especially for customers who shop at your company frequently.
If a customer chooses to use a new card on your site or update their payment method because of an expired card, they receive a new token for those cards and re-enter the token life cycle.
What Are the Benefits of Card Tokenization?
Card tokenization in payment processing can offer various benefits to your business and your customers. When you use high-security payment options like card tokenization, you can see the positive effects it has on your business.
Increase Protection for Your Customers
Many card fraud and security breaches happen at the merchant level. Because of this, it is essential to have a good system to protect your customers’ personal and sensitive information. While algorithm-based methods like encryption can provide solid security, hackers and cybercriminals can still bypass security measures and access information.
With card tokenization, if you experience a security breach and hackers steal customer data, they only receive the tokens, which have no meaning to them without the ability to pair them with their correlated accounts. Your customers’ information remains safe in a secure location where hackers can’t reach it.
Save Money on Cybersecurity
Data breaches are expensive for businesses, with average costs reaching around $4.24 million. Security breaches can lead to lawsuits from customers who had information leaked or expensive marketing campaigns to promote new safety measures — 41% of businesses reported financial losses after a data breach. When you use protective measures like card tokenization, you can reduce the costs of data breaches and overall cybersecurity measures.
Because card tokens store card information beyond your company networks and internal systems, when security and data breaches occur, you can ensure the safety of personal information and save money you would’ve needed for the repercussions. Since you don’t store your customers’ sensitive information, you don’t have to pay as much to protect that information, saving you even more money.
Maintain Customer Trust
As a business, it is essential that you have the trust of your customers, especially when handling their personal information. Investing in secure card payment tokenization technology decreases the risk of security breaches leaking personal information or leading to identity and card theft, helping you keep your clients’ trust. When you continually provide good services and protect their information, you establish yourself as a trustworthy and safe company that makes your brand even better.
Enhance User Experience
With card tokenization offering increased security, you can provide better and more secure services to your clients. With card tokenization, you can invest in quicker purchasing services like one-click buying, in-app payments, and subscriptions. As the commercial world creates more technology allowing for more efficient and easier buying experiences for customers, it is essential you keep up to meet customer expectations.
By cultivating a user buying experience that is quick, easy-to-use, and secure, you can increase your customers’ likelihood of purchasing your goods and services.
Better Meet Industry Guidelines
The Payment Card Industry Data Security Standard (PCI DSS) is an independent organization requiring companies to uphold and maintain certain levels of security when handling and storing cardholder information. Companies need to comply with these standards to continue to do business that requires personal information.
Because of the advanced security and safety of using card tokens, you can easily meet PCI DSS while using a system that meets your company and customers’ needs. PCI DSS values the security of customers’ personal cardholder information, and you can uphold that standard through card tokenization.
Frequently Asked Questions About Card Tokenization
To best help your company and customers switch to card tokenization, it is helpful to understand it well. Use these frequently asked questions to deepen your understanding of card tokenization.
Is Card Tokenization the Same as Encryption or EMV Chips?
Card tokenization is very similar to encryption or EMV chips, especially since they all aim to protect customers’ personal information. Card encryption uses an algorithm to apply a security code to each individual character and symbol of their card information. At the same time, Europay, Mastercard, and Visa (EMV) chips create unique codes for each transaction to help prevent identity theft when paying with a card. Especially when paired with debit PINs, EMV chips are a safe way to pay for items in person.
Card tokenization instead replaces all information with one string of randomized numbers and letters to ensure security. Because this method allows banks to store user information in a safe and secure location, it offers the best protection for online interactions where the card isn’t physically present.
Both encryption and EMV chips aim to prevent security breaches and identity theft by making personal information harder to reach, while card tokenization provides a placeholder for that information so online criminals can’t access it.
Where Do Customers Use Card Tokenization?
Customers don’t actively use card tokenization, as it’s a service offered by companies to protect consumer information. Instead of using it themselves, customers begin the process of turning their information into a token by starting a transaction in your secure payment gateway. You can use card tokenization systems for repeat payments, allowing for quicker purchases on your site.
Card tokenization is not a new service for all customers. Digital wallet apps on smartphones, like Apple Pay, also use card tokenization to protect card information when paying at stores. Card tokenization methods are already in place in commonly used apps that your customers might use every day.
Is Card Tokenization Reversible?
Card tokenization is permanent to provide the best security for your customers. While you can remove services like encryption from card information, it could make it easier for hackers to access and steal card information to commit fraud. For the best and more secure protection, card tokenization makes it so that you can not reverse its effects.
Since customers play no part in card tokenization other than initiating the process, they also have no power to reverse it.
Where Can I Apply Card Tokenization?
You can apply card tokenization security measures to many different areas of online shopping to ensure the safety of your customers. Card tokenization is compatible with:
- Online shopping platforms.
- In-app purchasing platforms.
- Digital wallets like Apple, Google, and Android Pay.
While companies mainly look to card tokenization to protect their online customers, the compatibility with digital wallets allows companies to continue to protect customers that shop at their physical locations. Card tokenization helps you provide solid security measures to protect customers’ personal information across many different forms of payment.
Can Customers Use Card Tokens for Recurring or Future Payments?
Once a customer receives a token for their card at a specific company, they can continue to use that token for all future payments, including subscriptions or recurring payments. This is helpful for companies wanting to encourage and invite a loyal online following or offer unique services like subscriptions.
Because each customer only needs one token per company, companies can easily use tokens for customers who frequently use their services or elect for options that allow for recurring payments.
Can Card Tokenization Fail for a Customer?
The customer may receive a message when trying to make a purchase that their tokenization failed after their card expires. To fix this, they will need to update their payment information to include a new card they will use. Since this is a different card, they receive a new token linked to their account.
When establishing your card tokenization system, it is important to explain failures related to errors in the payment gateway so customers can better understand and solve the issue with minimal confusion.
How Do Companies Create Card Tokens?
To create card tokens, companies can invest in a card tokenization service with a special algorithm to randomly generate a unique token for each customer and card. These systems apply to your payment gateway, where your customers begin the card tokenization process and help communicate with banks and card companies to ensure the validity of their card information.
Utilize Hydrogen For Card Tokenization
With card tokenization, you can protect your customers from theft and security breaches at your company. Card tokenization is compatible with many different payment methods and lets you invest in new payment technology to improve your customers’ experience with your brand.
At Hydrogen, we recognize the importance of protecting customers’ personal information through security measures like card tokenization. When you subscribe to our services, we offer a platform that helps your company use card tokenization with digital wallets. Sign up with Hydrogen today and discover how card tokenization can benefit your business.