{"id":5422,"date":"2022-11-04T08:27:22","date_gmt":"2022-11-04T08:27:22","guid":{"rendered":"https:\/\/paybis.com\/blog\/?p=5422"},"modified":"2024-04-10T09:01:18","modified_gmt":"2024-04-10T09:01:18","slug":"what-is-payment-tokenization","status":"publish","type":"glossary","link":"https:\/\/paybis.com\/blog\/glossary\/what-is-payment-tokenization\/","title":{"rendered":"Payment Tokenization"},"content":{"rendered":"

Financial services, particularly retail banking has made significant strides over the years. Since its early beginnings, it has now become a thriving ecosystem with<\/span> $400 billion in annual consumer spending<\/span><\/a>.<\/span><\/p>\n

But with growth come challenges. Retail banking has to deal with many issues, including credit card theft. FTC <\/span>reports<\/span><\/a> that credit card fraud led to losses of over $5 billion in 2021 alone.<\/span><\/p>\n

While most expect the figure to spike in the coming years, blockchain technology seems to offer a solution – <\/span>payment tokenization<\/b>. To this day, the concept has proven to prevent incidents of security breaches by up to 99%. But how exactly does it work? Let\u2019s find out.<\/span><\/p>\n

Tokenization – The origins of the new era of security in payments<\/span><\/h1>\n

To understand the idea behind payment tokenization, it is necessary to understand the concept of tokenization itself. Tokenization is not new and has been around since the dawn of time. A keen example is the exchange of money for chips at a casino or the conversion of funds for tokens at a slot machine.<\/span><\/p>\n

\"tokenized<\/picture><\/p>\n

You give money and receive a tokenized representation of the money. <\/b>This representation can be used for a particular purpose within a particular system.<\/span><\/p>\n

The general idea behind the concept is simply the substitution of one item to represent another within a particular framework. And this can be applied in different industries.<\/span><\/p>\n

Tokenization and data security<\/span><\/h2>\n

So, what is tokenization when it comes to the privacy of data? In short, it substitutes a sensitive data element with a non-sensitive equivalent, known as a token. This token often has no innate value and with the use of a tokenization system, it maps back to the sensitive data (the actual, real value).<\/span><\/p>\n

While tokenization seems foolproof, there are some factors that ensure the safety of sensitive data. The system has to store, authorize, and audit while being isolated from any applications that store sensitive data.<\/span><\/p>\n

Understanding payment tokenization for card security<\/span><\/h2>\n

Having established the connection between tokenization and data security, we can now focus on payments. We already explained that tokenization is the process of replacing sensitive data with non-sensitive data. The same rule applies for payment tokenization.<\/span><\/p>\n

The payments industry leans heavily on the use of credit cards with billions of credit card transactions being settled annually. Alongside the spike in credit card usage, there is the growing threat of bad actors breaching security processes to steal user data. In 2017, a staggering 130,000 credit card fraud was <\/span>reported<\/span><\/a> with the same jarring numbers recorded in several jurisdictions globally. To get around this threat, payment tokenization has been touted as a veritable solution.\u00a0<\/span><\/p>\n

Payment tokenization explained simply is somewhat difficult. Essentially, it involves using a unique string of numbers or letters (tokens) to replace sensitive customers\u2019 data like a primary account number (PAN), address, and card number.<\/span><\/p>\n

This token is generated randomly and is often issued in real-time and has no connections to the user accounts. No sensitive data belonging to the user is used in the process. Rather, the token points where the information is being held in the customer’s bank. Thus, the function of the token apart from masking sensitive data is to access, pass and transmit credit card information between systems.<\/span><\/p>\n

Token generation makes use of mathematical algorithms that have proven to be secure and reliable. The implication of this is that, even if, the token falls into the hands of bad actors, there is little they can do to breach user accounts.<\/span><\/p>\n

How does it work?<\/span><\/h2>\n

The following step-by-step process explains how to process works.<\/span><\/p>\n