As digital payment methods continue to take off and contactless payments become the standard, but cyberattacks continue to rise, how can consumers ensure their payment information stays safe? In this article, I will outline some strategies for leaders on how to best implement tokenization in their payment processes. As a disclosure, this is one service offered by my company Veritran.
So, what exactly is tokenization? And why is there so much discussion about it right now in the financial and technological industries? Let’s take a look.
What is tokenization?
According to Gartner, the definition of tokenization is the process by which a piece of sensitive data, such as a credit card number, is replaced by a surrogate value known as a token. It helps ensure a customer’s personal information is safe from fraudulent activity and standardizes the payments experience, making contactless and digital payments more convenient and safe than ever before.
In addition to payments, tokenization can be used for a social security number, passport or driver’s license number and address or telephone number, among many other pieces of sensitive personal information.
The overall appeal of tokenization is the enhanced security it allows financial institutions to provide for consumers, and for the businesses that consumers spend money with. Not only does it link a consumer’s personal data to a token, but it is impossible to decipher as well.
How does tokenization work, and what is the outlook for this process?
Tokenization within the payments space has been huge this year. Emergen reports the tokenization market size reached 2.28 billion in 2021. As this solution continues to become a regular player across the payments industry—and as more organizations aim to be compliant with the Payment Card Industry Data Security Standard guidelines implemented in 2004, which are designed to better prevent data theft and fraud within credit and debit card transactions—the market will only continue to grow.
The secure process starts with a customer making a tokenized purchase from a business or merchant. The organization receiving the payment then reaches out to the customer’s bank with the token for approval. From there, the bank can approve the purchase, which avoids sharing the actual credit card information of its customer.
Used well, this process can add an extra layer of security that enhances customer assurance, creates a better customer experience and allows businesses to make transactions without storing their customer’s sensitive information, reducing their burden of compliance with financial regulations.
For financial institutions, tokenization enables contactless payments—which have emerged as a top consumer demand since the beginning of the pandemic—and can also help mitigate the risk of being liable for fraud.
Learn more: Forbes