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What Is Tokenization and What Are the Benefits Associated With It?December 16, 2015
Given the escalating number of data security breaches being reported every day, organizations, both large and small, are increasingly adopting various methods to safeguard their customers’ data. While preventative tools like cyber insurance policies, help organizations mitigate the financial risk that follows after a data breach, security measures such as EMV smart cards, data encryption and “tokenization” ensure that a consumer’s debit or credit card information is protected against fraudulent and cyber criminal access.
So what is tokenization?
Tokenization is the process through which a customer’s data is concealed when a debit or credit card payment is authorized, and funds are taken from the consumer’s account and placed into the merchant’s account. With tokenization, a consumer’s card information, after being tendered, is first transferred to an extremely secure third-party payment gateway. This is the final stop for any open card data. Here, the vulnerable information is turned into a token, which is an alphanumeric identifier unusable by any other parties besides the merchant and payment gateway, due to limitations imposed on the token. Thus, a thief cannot duplicate a token or try to use it to buy things elsewhere.
But is the information safe once the transaction is complete?
Yes, absolutely. This is because once the transaction is authorized, the payment gateway returns card information to merchants in a tokenized form. Consequently, stores hold the consumer’s card information in an encrypted state, which cannot be used by any intruder who might succeed in accessing the merchant’s data.
Apart from purchases, what else can merchants use tokens for?
A merchant can use tokens to quickly process repeat payments, exchanges, returns and other adjustments. They can even perform sales and marketing analysis using tokens.
Tokenization decentralizes credit card transactions, and this is something which is quite desirable. In today’s day and age, a consumer’s credit card information is stored in various places. Not only do countless merchants have access to the data, but information is also recorded in places where the individual herself chooses to save it. Tokenization involves substitution by another value; hence, if any system is compromised, it is the token that is compromised and not the customer’s data. This can be a relief, since in case of a data breach, consumers will not have to spend hours on the phone or Internet changing their information or requesting a new card.
Tokenization can be likened to a digital paper shredder. Just as a paper shredder renders sensitive data, such as bank account statements and check book registers, meaningless, similarly, this process makes it almost impossible to reassemble or identify a consumer’s personal account information. Compared to a non-tokenized transaction, the system does not change the customer’s experience during transaction processing – typically, the cardholder will not even be aware that a token has been assigned to her card, or know what the token is.
Tokenization is an added layer of protection in payment processing. While EMV cards provide security for “card-present transactions,” i.e., when the customer physically completes the payment by inserting her card into the EMV terminal at the point of sale, tokenization addresses the fraudulent use of account data during processing and data transmission. This also includes payment transactions initiated at point of sale, in e-commerce, and those that use emerging payment technologies like mobile or digital wallets such as Android or Apple Pay.
For merchants wishing to benefit from tokenization, the process of implementation is quite simple. All they need to do is choose a payment provider that uses tokenization in their transaction processes, since most of the work for this system takes place on the back end. By simply choosing a provider that guarantees tokenization, a merchant can not only mitigate risk, but also enhance payment security.
Fund&Grow uses a similar process to protect our client’s data. As we are regularly getting between $50,000 and $250,000 for our small business and real estate clients, it’s essential we have state-of-the-art protection for client data. If you have any questions about our processes, or how we can get $50,000 and $250,000 for you, please do not hesitate to call us at (800) 996-0270 or to contact us via email.