Credit Card Tokenisation & How It Works
Security is one of the most pressing concerns in online transactions for consumers and merchants alike. The increasing number of data breaches and cyberattacks has raised concerns about the security of personal and financial information; this is where credit card tokenisation comes in.
Credit card tokenisation offers a robust solution to protect sensitive card data during online and some point-of-sale transactions. It’s one of the top security features business owners must look for when choosing a payment processor.
What Is Credit Card Tokenisation?
Credit card tokenisation is a key security process in e-commerce and in-store payments. Tokenisation replaces sensitive payment information—the cardholder’s Primary Account Number (PAN)—with a unique set of characters called a “token.” This means the consumer’s sensitive payment data is replaced with non-sensitive data that can’t be used fraudulently. Replacing the PAN helps keep digital payments safe as the consumer’s actual card data isn’t used or stored.
Tokenisation protects consumers and their sensitive payment information from potential security threats like data breaches. It means that even if someone were to access the token in the case of a cyber threat, they wouldn’t be able to access the consumer’s credit card data as the token doesn’t contain actual payment data.
Online businesses can provide a secure and seamless payment experience for their customers by using tokens instead of actual card information. According to Eurostat, 87% of 25-34-year-olds and 85% of 35-44-year-olds bought goods online in 2023. Protecting online transactions helps merchants maintain their customers’ trust and maximise sales.
Is Tokenisation the same as EMV Chips?
EMV chips and tokenisation work on a similar principle but are used in different types of transactions. EMV chips are only used during in-person transactions when the customer uses a “chip-and-pin” card. Tokenisation protects online payments and in-store payments made with alternative payment methods like QR code payments.
Modern chip-and-pin credit cards are embedded with an EMV chip. When you tap or swipe your credit card in-store, the chips create a unique code for each purchase. This protects your card details from data breaches. The chip on your card serves no function during online payments, however, meaning that tokenisation is required to fully protect your transaction. In essence, tokenisation focuses on data security, while EMV chips focus on card security.
How Does Credit Card Tokenisation Work?
Credit card tokenisation works by replacing sensitive payment information with a string of letters and numbers that don’t identify the cardholder or their credit card details. As this randomly generated string does not contain any identifying information, it can’t be used fraudulently.
The Credit Card Tokenisation Process
A tokenised online transaction follows these steps:
- The customer provides their card details at the checkout to make an online purchase.
- The customer’s card data is tokenised and the token is sent to the merchant’s acquiring bank. This replaces the customer’s payment details with randomly generated data.
- The acquiring bank requests authorisation from the corresponding credit card network
- Meanwhile, the customer’s payment details are held by their bank in a token vault. The transaction will be approved as long as the token generated by the credit card issuer matches the customer’s account number.
- The payment token is returned to the merchant when the payment has been approved.
Who Creates Tokens?
Tokens are created by token service providers; these providers issue, manage, and store tokens. A number of different entities can function as a token service provider, including a payment network like Visa or Mastercard, a card issuer, or other entities that comply with industry standards.
Where Is Payment Tokenisation Used?
Tokenisation is used in a wide range of payments, including e-commerce and point-of-sale systems in shops or businesses. Subscription service providers often tokenise customer payment information for recurring payments and one-click transactions, streamlining the online purchasing experience.
Point-of-Sale Systems
Tokenisation isn’t only used in online payments. It’s also an essential security layer on the high street for brick-and-mortar shops that accept mobile payments. When a customer taps their mobile phone or watch at a POS terminal to make NFC payments, their card details are captured and a token is generated. This means the shop doesn’t store customers’ card numbers; rather, they use tokens for payment processing.
Online and Subscription Services
A huge range of businesses from gyms to wine clubs offer subscription services. This business model requires the company to keep your card on file to set up recurring payments. In this case, the business will typically tokenise their customers’ credit card credentials to keep their data safe. Tokenisation can also be used for one-time online purchases.
How Can Merchants Ensure Secure Credit Card Transactions?
Merchants can ensure secure credit card transactions by choosing a merchant services provider that offers their customers the highest possible level of security; PCI level 1. When businesses choose a service provider, they give them the responsibility of securing their customers’ credit card transactions. For that reason, it’s best to opt for the highest level of security available rather than take chances.
When you apply to open a merchant services account with an integrated global payment gateway, look for the following features:
- A PCI level 1 compliant gateway with an SSL certification
- Fraud scrub technology
- Chargeback protection
Investing in the highest level of security is a crucial part of protecting your customers and your business. This is made possible by working with the most trustworthy service providers.
What Are the Benefits of Credit Card Tokenisation?
Credit card tokenisation is beneficial both for merchants and customers.
Ensures PCI DSS Compliance
Tokenisation helps merchants meet PCI DSS compliance requirements and minimises their exposure to risk. Simplifying payment security via tokens means reduced compliance costs for the merchant thanks to the lighter burden of steps needed to meet compliance standards. It also increases the likelihood of avoiding costs associated with data breaches like fines, legal fees, and reputational damage.
Streamlines Digital Transactions
Tokenisation is essential for enhancing payment security as it addresses one of the biggest challenges in data protection: the need to find a balance between high security and transaction efficiency. Tokenisation replaces the need for traditional encryption and decryption methods during credit card transactions. This streamlines credit card processing as tokens are processed and transmitted without the need for decryption.
Tokenisation also allows merchants to keep customer tokens on file. This means that customers don’t need to enter their details every time they initiate a transaction. Merchants can therefore offer secure and quick one-click or recurring payments.
Offers High-Level Security and Builds Trust
Tokenisation represents a significant step forward for data security for consumers and merchants alike. Tokenisation offers a robust framework for conducting secure transactions and helps businesses comply with regulatory requirements.
Businesses and institutions can use tokenisation to minimise the risk of customer data theft from cyber attacks. This is essential for small businesses as guaranteeing safe online transactions is essential for retaining customer loyalty and boosting brands’ reputation.
Ensure Secure Online Transactions with Tokenisation
PCI-compliant merchant service providers play a crucial role in ensuring the security of online transactions. Providers that use tokenisation offer businesses and consumers a reliable and safe way to process payments.
When searching for a merchant services provider, prioritise providers that offer unparalleled security tools. This will protect your customers’ data, mitigate the risk of financial loss, and build trust in your brand.
