3 Things You Need to Know About Tokenization

With online payments continuing their meteoric rise, the need for better payment security is growing.?

Recent data from IT Governance exposed that in January 2023 alone, there were more than 100 publicly disclosed security incidents, resulting in more than 277 million cases of leaked information.?

Yet, despite this influx of data breaches, innovation in the payment industry is pressing onward — potentially at the expense of regulatory compliance. Deloitte’s Payments Trends 2022 report reveals that regulators are struggling to keep up with the pace of payment innovation, with cross-border payments highlighted as one of the top concerns for regulators in the U.S.

With payment innovation and regulatory compliance butting heads, merchants, and platforms must consider how they can keep customer payment information safe while regulators work to catch up.?

Ironically, the solution to the challenge of payment innovation can be found within the innovation itself — specifically, through payment tokenization.?

What is Payment Tokenization?

Payment tokenization is a process used in payments and other transactions that replaces sensitive financial details (such as cardholder information) with a unique identification token.?

Rather than sharing financial information directly, a token is used to represent this information and can reference the actual financial details under approved circumstances. To put it simply, this means that if nefarious parties gain access to a merchant or merchant aggregator’s payment system, any payment or card information will be protected by tokens and inaccessible to them.??

Want to learn more about the specifics of tokenization? Read our post on Payment Essentials: Payments Orchestration and Tokenization

3 Key Considerations About Tokenization

Tokenization offers a plethora of benefits to organizations striving to improve their payment stacks. With the right approach to tokenization, your business can not only enhance payment security but also increase customer loyalty and trust.?

Here are three of the top benefits of tokenization to consider:?

1. Simplified PCI DSS Compliance

For anyone whose business deals with and stores cardholder information, tokenization can greatly simplify the requirements of PCI DSS compliance .?

Payment card industry (PCI) compliance is a set of regulatory standards set by the PCI Security Standards Council (SSC) which includes the major card companies; Visa, MasterCard, Discover, and American Express, as well as JCB International. These standards are meant to provide greater protection to cardholders and improve the overall quality of security in the payments industry.?

As part of PCI compliance, businesses are expected to meet 12 key requirements — one of which is to have a strategy in place for protecting cardholder data.

Tokenization of credit card information is one way your business can meet this requirement and is recognized by the PCI SSC as an effective means for reducing the scope of PCI compliance.

According to the PCI SSC :

“Tokenization solutions do not eliminate the need to maintain and validate PCI DSS compliance, but they may simplify a merchant’s validation efforts by reducing the number of system components for which PCI DSS requirements apply.”

2. Enhanced Customer Experiences

Along with reducing the scope of compliance, tokenization can also provide immense assistance in building better experiences for your customers. In turn, these improved experiences can help foster greater customer loyalty and trust.?

Digital and online payments have grown significantly in popularity in recent years — yet, many customers still feel uncertainty and discomfort over the security of such payments.?

A 2020 study reveals that roughly 69% of digital payment users worry about the security of these payments. In a more recent 2022 PYMNTS report, more than 80% of consumers believe data security surrounding personal data is “extremely important” (52.4%) or “very important” (28.3%).?

Tokenization allows your platform to show customers you value their privacy and security above all else — something that is especially important for any services in which a customer’s payment information is stored and used for payments.?

3. Safer Recurring Payments

Tokenization can also help improve the recurring payments process.?

When a customer signs up for a subscription service, they must often provide their payment information to be stored long-term throughout the period that they remain subscribed. This can be nerve-wracking for customers who feel unsure of how safe their information is within a business’s system.

By offering tokenization to protect customer payment information, you ultimately provide your customers and subscribers with a better sense of safety regarding their sensitive financial details.?

Additionally, the ability to store payment information via tokens can make the recurring payment experience for customers simpler and more convenient as well. All the customer needs to do is enter their payment information once and then wait for each monthly payment to be automatically charged.?

How to Implement Tokenization on Your Platform

Tokenization — though useful — can be a difficult technology to implement without the right support.

Payments teams already have a lot of moving parts to juggle in their business models. Adding tokenization to a payment stack can feel like another layer of complexity that only complicates a platform’s payment system further.?

As a result, to make the most out of tokenization, the key is to find a reliable technology provider, such as a payment orchestration solution that offers network tokenization. Through network tokenization, platforms can easily store payment data as tokens across a variety of different products and services, as well as enable the tokenization of payment methods beyond traditional card payments.?

Leverage Tokenization with Spreedly

The Spreedly API is a payment orchestration solution built for merchants, merchant aggregators, and fintechs — with key capabilities that make managing a payment system a breeze.

Plus, our platform is PCI-compliant at the highest level and offers more than 100 different payment services and fraud tools to assist you in building a resilient payment ecosystem.

Talk with the Spreedly sales team today to learn more about our tokenization capabilities.?