Tokenization
Data security is paramount to many businesses, none more so than the credit card processing industry. Customers need to know that personal payment information is secure at the transaction time, and merchants need to ensure the data stays secure. Host Merchant Services offers the most secure form of data storage for payment information, which is called tokenization. The process of tokenization is one of the many features of the HMS Express platform offered here at Host.
What is Tokenization?
Tokenization is the process of taking sensitive data as input, such as credit or debit card numbers and returning a “token” that represents that sensitive data as output. The token is typically made up of upper- and lower-case alphabetic, numeric, and special characters depending on the algorithm used to encrypt the data, and it typically has no relationship with the sensitive information it replaces. The provider stores the encrypted data in a PCI compliant and secure database “in the cloud”.
The merchant stores the token, which is a unique pointer to that data, but has no means to decrypt it. So, a card can be stored securely and referred to for processing a transaction, but the data cannot be stolen or decrypted with only the token. If a hacker steals tokens, they are useless because they do not contain any cardholder data. The concept behind tokenization is remarkably simple: Data thieves can’t steal what isn’t there.
Payment Processing Applications
In credit card processing, information can be tokenized when a card is swiped at the merchant’s point of sale (POS) system or when payment details are entered into a virtual terminal. Once a system has the cardholder data, it is passed to the credit card networks for authorization. After being authorized, a token is randomly generated and passed back to the merchant, and stored in place of the customer’s credit card numbers. This process increases a merchant’s base level of security and can help them avoid costly data breaches.
Benefits of the Process of Tokenization
Tokenization is useful for merchants who need access to sensitive information but do not want to store it themselves. The process allows the data to be stored by the PCI-DSS-certified merchant gateway provider instead of by the merchant. One feature that tokenization can provide is the ability to process recurring transactions without the risk of storing card numbers locally. The merchant passes the token back to the processor on a recurring transaction. The processor then looks up the token and generates a transaction based on the cardholder data associated with that token.
This process benefits many different industries, such as web hosting companies or fitness centers, which bill customers a set amount each month and want to avoid the risk of storing large amounts of payment information. Some other tokenization features include the ability to analyze card usage and generate unique token values for each customer. This allows for useful features such as fraud protection and loyalty programs.
Here is a complete list of benefits that a merchant and customer get with the help of tokenization:
- High Level Of Security: Tokenization significantly improves security in merchant services and payment processing by converting sensitive payment information, such as credit card numbers, into unique, non-sensitive tokens. This process ensures that the payment data is never exposed during the transaction lifecycle, minimizing the risk of unauthorized access or fraudulent activities. For businesses that handle a large volume of transactions, this means a stronger defense against data breaches, as the tokens themselves are worthless if intercepted by cybercriminals.
- PCI DSS Compliance: Tokenization aids businesses in achieving and maintaining compliance with the Payment Card Industry Data Security Standard (PCI DSS). By replacing sensitive cardholder information with tokens, businesses can reduce the scope of their PCI DSS compliance requirements, as the cardholder data is not stored within their systems. This helps avoid penalties and builds and maintains customer trust by adhering to industry standards.
- Better Customer Experience: Tokenization contributes to a better customer experience by facilitating a smoother and more secure checkout process. Customers benefit from the enhanced security of their sensitive data and enjoy the convenience of not having to enter their payment information repeatedly for future transactions. This ease of use and assurance of security can significantly increase customer satisfaction, loyalty, and the likelihood of repeat purchases. A positive payment experience is critical in building trust between the merchant and the customer, encouraging them to continue their business relationship.
- Streamlined Data Management: Reusing tokens for future transactions simplifies the management of customer payment information. This streamlined process reduces the need for merchants to store and handle sensitive data, thereby decreasing the complexity and cost associated with data management. It allows for a more efficient payment process by enabling quick and secure transactions without needing to re-enter payment details. It makes the system user-friendly and secure for recurring transactions, such as subscriptions or stored customer profiles.
- Prevent Data Breach: In the unfortunate event of a data breach, tokenization significantly contains the damage. Since the data compromised would be in the form of tokens rather than actual sensitive payment information, these tokens cannot be used fraudulently outside of the secure tokenization system. This minimizes the potential impact on the business and its customers, safeguarding the brand’s reputation and consumer trust. Businesses can thus assure their customers that their payment information is handled securely, maintaining the integrity of the merchant’s operations.
- Supports Latest Technologies: As new payment technologies emerge, such as digital wallets and contactless payments, tokenization remains a compatible and secure method for processing transactions. This adaptability allows businesses to integrate innovative payment solutions without compromising on security. Tokenization’s flexibility ensures merchants can offer their customers the convenience of the latest payment options while maintaining the highest security standards and staying ahead in a rapidly evolving digital payments industry.
- Less Fraud and Chargebacks: Tokenization can significantly reduce fraud and chargebacks by making payment information more secure and less susceptible to unauthorized access. This enhanced security measure means that even if data is compromised, the information obtained is useless to fraudsters, thereby protecting the merchant and the customer from financial loss. As a result, businesses can expect more stable and predictable cash flows, reduced operational disruptions due to fraudulent activities, and stronger trust in their payment processing systems.
- Enhance Payment Experience: Tokenization enables a frictionless payment experience by offering customers the option for one-click payment. eCommerce and subscription-based platforms benefit the most from this option. The payment information or data is saved in the form of tokens. It is safe and securely stored, thus making it possible for the customer to use the same information multiple times without retyping all the details. This allows quick transactions without compromising security, dramatically enhancing the user experience. This seamless integration of tokenization into the payment process not only simplifies purchases for returning customers but also significantly boosts conversion rates at checkout by minimizing the steps required to complete a transaction.
In Conclusion
The process provides undecipherable, unique tokens for each transaction. Merchants store the token, not the card number, and the tokens can be used for future transactions and returns or refunds. The system allows merchants to reduce their scope of PCI Compliance and lessens the burden of transmitting, processing, and storing payment data. Host Merchant Services can seamlessly integrate our payment gateway and it’s many features with any software, allowing merchants to outsource their payment acceptance and the associated risk. Contact us now to find out what tokenization can do for your business. For more information on tokenization, download Visa’s best practices guide and check out Host Merchant Service’s PCI Compliance Initiative for more security information.