Using Tokenization Technology To Enhance Payment Processing Security
Posted By : Priyansha Singh | 30-Aug-2022
Payment Processing Security With Tokenization
In an era where data breaches and fraud present looming threats, the security of digital transactions have become of paramount importance. And that is especially true with the security & privacy of payment data.
Moreover, payments are swiftly becoming more digitized and accessible as a response to customers’ demand for choice and convenience. Encryption and tokenization have emanated as key tools to safeguard such sensitive user information in a secure, cost-effective, and efficient manner.
While it is no doubt that businesses rely heavily on encryption and tokenization to secure payments, we will shed some light on how these technologies are enhancing payment processing security in a seamless way. We will also elucidate the benefits of tokenization solutions for secure transactions and payments, so let’s get started.
What Is Payment Tokenization?
In simple terms, tokenization is a robust process of replacing sensitive user data with secure and non-sensitive token data.
The real data is efficaciously stored in safe and purpose-built token “vaults”. The tokenization of payments and transactions is a comprehensive effort to replace sensitive or private data such as credit card numbers and PINs, with a unique code identifier that can only be decrypted, translated, and authenticated by the token providers.
In addition to this, tokenization enables businesses and their consumers to carry out payment transactions safely and securely while making the essential transaction data of “no cash value” to cybercriminals.
Tokenization is a standard and primary technology to protect cardholder information in a contactless transaction, whether online or in-store, along with securing recurring payments for everything from utility bills to every possible subscription-based transaction.
Here are some of the benefits of opting for tokenization solutions for payment processing:
- Helps in offering risk-free transactions
- Boosts trust in your customers
- Minimizes threats and risks from data breaches
- Protects other sensitive information
- Compatible with the latest technologies like NFC
Types of Tokenization
There are preeminently two types of tokenization models that are used in the payment industry.
- Device Tokenization
Device tokenization is carried out and processed by network providers while the token is saved on NFC-enabled mobile devices, NFC-powered IoT devices, or NFC-powered wearable gadgets. The tokens are embedded in these devices and gadgets and then utilized for tap and pay transactions.
- PCI Tokenization or CoF (Card-on-File) Tokenization
With this type of tokenization, whenever you opt-in during your initial payment online, the card details can be saved and then can be used to carry out card-not-present transactions. Such tokenization can be conducted by payment aggregators, payment gateways, merchants, or payment networks such as Mastercard and Visa.
How Does Tokenization Work in Digital Wallets?
A digital wallet is a medium or a tool to store sensitive and private financial information on a mobile device. NFC-enabled technology embedded in POS hardware can be used to accept contactless payments with a wave of a smartphone. However, the wallet automatically transfers any necessary information linked to it.
In that context, digital wallets have several layers of security. A biometric security measure or a passcode to open the device serves as the foremost layer of defense and protection. 2FA or two-factor authentication for wallet access furnishes another layer. Tokenization in mobile transactions and payment processing magnifies the safety of all the user data and card details itself.
Using this technology, the digital wallet holds a token that is directly issued by the credit card company rather than the user’s actual credit card data. This token then travels to the tokenization service or the card issuer for authentication and transaction approval whenever the user makes a purchase. The credit card company then finally approves the transaction without releasing private and sensitive card data to the merchant or transferring it over a network.
How Tokenization Is Enhancing The Entire Digital Payment Systems
Well, as we already mentioned earlier, there is always a risk in doing online transactions and utilizing digital payment systems in this new age. Since technology is continually evolving, so do hackers. While digital wallets are secure yet they are still bleakly susceptible to security breaches. However, it is possible to truncate such risks and this is where the role of tokenization comes into play.
Tokenization is clearly a new trend that defends data breaches with a ‘useless token’. It generates a token while leveraging various techniques to strengthen and reinforce the digital payment system.
- A one-way mathematical cryptographic hash
- A random number generator
- A ciphering function
FPE or format-preserving encryption and information from the database storage are the 2 crucial facets of the tokenization of cards to ensure and make the entire transaction process secure.
Tokenization Is The Future Of Digital Payment
Data tokenization services have entirely transformed and re-modernized the global digital payment system in profound ways. It has infused a new standard in the Fintech industry that offers reliable, fast, secure, and convenient mobile payment and financial solutions to businesses with security being the foremost and undeniable priority.
Tokenization is indubitably enabling digital wallet service providers to optimize their financial systems and make them more secure, robust, reliable, and seamless for users. While it may look and sound too complicated, however, its authenticity is its beauty. It is a cornerstone of eCommerce, eWallets, and more by making payments exceedingly secure and furnishing new-age user experiences.
Looking For Tokenization Solutions For Your Business?
At Oodles Technologies, we offer end-to-end digital transformation solutions to businesses across many industries such as Fintech, eCommerce, travel & tourism, healthcare, real estate, and more. As established data privacy and security service provider and a reliable software development company, we enable businesses to overcome the complexities and challenges of data protection, payment processing, data security, cloud computing, etc. Our seasoned professionals have hands-on expertise in architecting financial software products such as payment platforms and mobile wallets and use next-gen technologies to stay compliant, relevant, and competitive in the expansive FinTech landscape. If you are looking for custom financial app development or tokenization services to enhance payment processing security, feel free to drop us a line. Our experts will get back to you within 24 hours.