Tokenization in Payments 101

The basics of Tokenization. A crucial process in Payments??

What are Tokens in Payments:

Tokens are unique, randomly generated strings of characters or symbols used to represent sensitive data, such as primary account numbers (PANs). Since tokens are nonconvertible — that is, they can’t be reverse-engineered to reveal a customer’s original PAN — they’re an effective tool to protect sensitive data during storage, transmission and retrieval.

What is Payment Tokenization:

Payment tokenization is the process of replacing sensitive personal information with a surrogate value — a token — stored in a PCI-compliant token vault owned by the token creator, which can be an entity such as an acquirer, issuer, 3rd party token vault & network or payment processor.

To discover the PAN a token represents, a merchant would need to present that token to its creator; the creator would then look up the PAN within their highly secure token vault. When using payment tokens, the creator does not return the PAN to the merchant, but instead uses it to authorize a transaction. This way, the merchant is able to keep sensitive data out of their systems, so that hackers cannot gain access to it.

Tokens can vary in format but generally, they fall into 3 categories:

1?? -- Non-Format Preserving:?

?? The token doesn't look like the original data. For instance, a social security number could be represented as "T@%3N5."

2?? -- Format Preserving:?

?? The token retains the format of the original data but scrambles the numbers.

3?? -- Selective Masking:?

?? A hybrid approach, some original numbers are left unchanged for verification purposes, such as the last four digits of a credit card.

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Tokens can be transient or enduring. Single-use tokens expire after a single transaction, whereas multi-use tokens can be used for multiple transactions over an extended period.

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Tokens are secure because they're infeasible to reverse-engineer.?

Even if a data breach occurs, what is stolen are merely tokens, which are useless without access to the token vault. Industry standards like point-to-point encryption (P2PE) and PCI DSS guidelines add an extra layer of security.

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While both methods aim to protect data, tokenization offers an edge in compliance and security. If sensitive information is encrypted rather than tokenized, the data could potentially be decrypted, bringing it back into the PCI DSS scope and increasing risks.

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? ???????????????? ????????????: Generated by transaction processors, usually restricted to specific merchants - Nuvei , Adyen , Stripe

? ???????????? ????????????: Created by card issuers, like Visa or 萬事達卡 , often for digital wallets such as 苹果 Pay or Google Pay

? ?????????????? ????????????: Produced by credit card networks themselves, not bound to specific issuers - Visa , 萬事達卡 , American Express

? ?????????????? ????????????: A newer category generated on behalf of issuers and merchants, usable across multiple locations.

? ???????????????? ????????????: Tailored for individual merchants, these can be integrated into a merchant's specific customer journey and can link to multiple other types of tokens.

3rd-party providers — VGS , Basis Theory , TokenEx , and others — are able to generate agnostic tokens extremely valuable for interoperability across channels and providers.?

Benefits of Tokenization in Payments:

• Ensure PCI DSS compliance --?By replacing PANs with randomly generated characters and symbols, tokenization dramatically reduces merchants’ exposure to risk, enabling them to secure payments and meet PCI DSS compliance obligations.
• Control costs --?Tokenization simplifies payment security, which means merchants spend less trying to meet PCI DSS’s compliance requirements. Additionally, by securing payments, tokenization reduces the risk of data breaches and their associated costs, such as fines, legal fees, damage to their reputation, and loss of business.
• Increase payments efficiency --?Tokenization enables merchants to keep customers’ tokens, rather than their PANs, on file, streamlining the payments process. Rather than manually enter their information every time they initiate a transaction, customers can easily and securely set up recurring or one-click payments.
• Reduce the risk of data breaches --?With tokenization, merchants can only store tokens, not customers’ PANs. This way, should a bad actor hack into a merchant’s systems, they’ll only be able to access tokens, which are useless to them, rather than actual cardholder data.
• Improve the customer experience --?From a faster, more seamless checkout process to the peace of mind of knowing that their payments information is kept safe, tokenization enhances the customer experience and improves long-term satisfaction and loyalty.

Tokenization is one of the most crucial processes in payments, from acceptance to security, compliance, cost, user experience, and more ??

Source: ACI Worldwide & Terry Rourke & his amazing report - https://lnkd.in/eheQKTTN

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