Tokenization is the process of replacing a sensitive piece of data with an unreadable code, called a token. Tokens can be used for authentication, identification, or verification purposes. Credit card tokenization is a type of tokenization that replaces credit card numbers with tokens.
Why Use Credit Card Tokenization?
Credit card tokenization provides several benefits for businesses and consumers. For businesses, tokenization provides a way to protect credit card numbers from data breaches. If a business’s database is compromised, the credit card numbers can be stolen, but the tokens cannot be used to make fraudulent purchases. This reduces the risk of financial losses for businesses.
For consumers, tokenization provides better security than traditional credit cards that store sensitive information on the magnetic stripe. Even if these cards are lost or stolen, hackers can use them immediately to make unauthorized purchases. Tokens associated with consumer accounts require special encryption, so they cannot be used for unauthorized transactions until they are unencrypted at a payment gateway during checkout.
How Do You Use Credit Card Tokenization?
Businesses that want to use credit card tokenization must first sign up for a payment gateway that supports the feature. Then, they will need to create tokens for each of their credit cards. This process can be done manually or automatically using a tool provided by the payment gateway.
When a customer wants to make a purchase, the payment gateway will unencrypt the token and send the credit card number to the merchant’s bank. The merchant’s bank will then process the transaction as usual. Because the credit card number is not stored by the business, it can’t be stolen if its database is compromised.
Are There Any Risks Associated With Credit Card Tokenization?
Like other types of tokenization, credit card tokenization reduces the overall risk of a security breach. However, some merchants still have concerns about storing tokens instead of credit card numbers on their servers. For example, if tokens are stored with a hash function, they can be compromised using an XSS attack when they are unencrypted at the payment gateway.
Merchants should also be aware that not all payment gateways support credit card tokenization. If they switch to a new payment gateway, they may need to create new tokens for their credit cards.
Credit card tokenization is a process that replaces credit card numbers with tokens. Tokens provide businesses and consumers with a way to protect sensitive credit card information from data breaches and unauthorized transactions. To use credit card tokenization, businesses must sign up for a payment gateway that supports the feature and create tokens for each of their credit cards. When a customer wants to make a purchase, the payment gateway will unencrypt the token and send the credit card number to the merchant’s bank.
Credit card tokenization protects payment information without requiring merchants to implement new payment technology or change the way they process credit cards. However, it may not be available with all payment gateways and can result in extra work for some businesses if they switch payment gateways.