Credit card tokenization is the process of substituting a credit card account number with a unique digital identifier called a token. This token acts as an alias for the actual card number. Therefore, instead of transmitting the primary account number (PAN), only the generated transaction tokens are sent to and from merchants and payment gateways over encrypted networks like the Internet.
How Do Tokenized Payment Cards Work?The payment industry is becoming more and more advanced and hence, consumers want better ways to pay. Some consumers prefer using credit cards over other forms of payments because they are simple to use and require less user interaction. However, this convenience comes with a large downside: payment card data is often stolen by cybercriminals. In fact, according to a study by Javelin Strategy & Research, in 2017 there was a record-breaking 16.7 million victims of payment card fraud in the United States alone.
One way to help mitigate this type of fraud is through the use of tokenization. Tokenized payment cards work by replacing a consumer's primary account number (PAN) with a unique digital identifier, or token. This token is used in place of the PAN to authorize transactions. The benefit of this approach is that even if cybercriminals manage to steal the token, they will not be able to use it to conduct fraudulent transactions since it is not associated with a PAN and has no monetary value.
Who Are These Tokens Issued By?A token issuer is a reputable financial institution such as a credit card network (Visa, Mastercard, American Express), an acquiring bank, or the payment gateway through which tokens are created. They are responsible for creating and maintaining digital representations of physical cards, which are called tokens.
What Types of Transactions Can Tokenization Be Used For?Tokenization can be used for a variety of different types of transactions, including in-store purchases, e-commerce transactions, and even recurring payments. In addition, tokens can also be used for both domestic and international transactions.
Are There Any Drawbacks to Tokenization?While there are many benefits to using tokenized payment cards, there are a few potential drawbacks. For example, if a merchant does not have a tokenization enabled payment gateway, they may not be able to accept tokens. In addition, some consumers may find that using tokens is more complicated than using their primary account number.
What Payment Card Processors Support Tokenization?Visa, Mastercard, Discover, American Express, and JCB all support some form of tokenization. The most popular form of tokenization is dynamic data authentication (DDA). In addition, merchants can also use a payment gateway to generate tokens for their transactions.
Overall, tokenization is a valuable tool that can help reduce payment card fraud. By using a token in place of a PAN, merchants can help protect their customers' data and ensure that their transactions are processed securely. If you are interested in implementing tokenization for your business, be sure to consult with your payment processor to see if they offer this service.
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