What is card tokenization, and how does it make online card payment safer and easier? (2024)

The modern-day horror story is quite different from the ones we heard as kids. Instead of the scary sound of a door opening with a painful groan, it starts with an SMS alert stating that your account is debited with money you did not spend. This message is enough to send the bravest into a fit of frenzy and land them howling on the ground, vociferously imagining the end of the world. The monster here is a cybercriminal or a cyber-attack firm cloning credit cards or using your personal information to rob you of your life’s savings. However, to the relief of many, there is a way of preventing such breaches (and horror); the foremost among these is card tokenization.

What is card tokenization?
Card tokenization is a simple process of anonymizing sensitive information on a recipient’s card (like the card number, expiration date, and security code) with a personalised and unique identifier, or a token, which acts as a stand-in for the actual card data and can be used for all transactions. Thanks to this code, sensitive information does not assume centre stage and is securely stored away from prying eyes. This contributes significantly to reducing the risk of unauthorised access and fraud.

How does tokenization work?
Tokenization begins when consumers enter their credit card information on a website or mobile application and agree to store their card details by giving explicit consent to the merchant. Post-consent, instead of retaining the real card information, the payment gateway or the merchant generates a token through card networks, issuer banks, or specialised tokenization platforms like Wibmo Token Hub. This tokenization technology generates a unique token associated with the card details and every merchant and instantly returns it to the merchant. From then on, the merchant only uses the token, keeping sensitive information out of their systems.

Even in the unlikely event of a data breach, hackers would only have access to irreversible tokens, thereby protecting essential card data. So to summarise, for the same card details, a unique token will be generated at different merchant websites, adding an additional layer of security from data breaches at a particular merchant. Customers can continue using their card details at other merchants without worrying about the data breach at a particular merchant. Without tokenization, customer card data would have been compromised, forcing him or her to cancel and apply for a new card from the issuing bank.

The benefits of card tokenization
The real power of card tokenization is derived from the fact that it can significantly enhance security and render the threat of breaches useless by eliminating the need to store or regularly access sensitive information pertaining to the users’ cards. From the point of view of merchants, this is helpful as it rids them of the burden of investing in mechanisms to secure information, as they now have to deal with mere tokens. This goes a long way towards strengthening client-merchant trust and introducing transparency into operations. It is, thus, a win-win situation for both.

Enhances compliance with regulatory norms
All businesses handling payments via cards must strictly adhere to the regulations in the Payment Card Industry Data Security Standard (PCI DSS) guidelines. This can be highly cumbersome and may cost the firm a lot of time and money. With card tokenization, this burden is significantly reduced. The token does not fall within the domain of sensitive information, thereby severely restricting the ambit of the PCI DSS compliance requirements. With this, the onus of securing card-related information lies with the tokenization system provider, thus facilitating smoother and risk-free business operations.

Augmenting convenience
Card tokenization provides consumers with a seamless and convenient payment experience and increased security. Once tokenized, the card can be used for any and all transactions without the need to enter card information for each purchase, thus saving time and minimising the risk of errors. Furthermore, tokenization allows for frictionless one-click payments, allowing consumers to complete transactions with a single click or tap without running the risk of a hack or a breach. This can be a boon when one views the sheer number of online payments made in the current e-commerce landscape.

Easier transitions between various platforms
Card tokenization promotes interoperability across various payment platforms. Tokens are independent of specific payment networks or processors, allowing their usage across different devices and channels. Whether making a payment through a website, mobile app, or in-store terminal, the token remains consistent, ensuring a smooth payment experience. This flexibility opens new horizons for innovative payment solutions, such as mobile wallets, wearables, and connected devices, enabling a seamless and interconnected ecosystem.

In the current scenario, card tokenization is a ground-breaking advancement in online payments. It provides a secure environment for consumers to make purchases without fearing their card information falling into the wrong hands. By replacing sensitive data with tokens, businesses can significantly mitigate the risk of data breaches and streamline their compliance efforts. Furthermore, tokenization offers an unmatched level of convenience, allowing for swift and effortless transactions. Embrace the power of card tokenization and embark on a safer, more convenient future of online payments where security and ease of use harmoniously coexist.

(The writer is VP Merchant Acquiring Business, Wibmo, A PayU Company)