Tokenization provides added levels of security for customer data, revolutionizing online payments by replacing a customer's credit card data with a set of randomly generated numbers, known as tokens, identifiable to only the customer's account with a merchant. This service, typically offered by third-party payment providers, facilitates faster online purchases for an online account without exposing customers' credit card data to potential fraudsters. In addition, if hackers were to breach the payment provider and copy the tokens, they could do nothing with them since they have no value outside of that payment system.
Usually, when customers want to purchase something online, they must provide their billing information and credit card number. This data flows through a digital payments system in which communication occurs between the merchant and the card's issuer to process the payment. If fraudsters hack into this system, they can access valuable information that could compromise a customer's finances. Collecting payment and customer data via a PCI-certified third-party payment processor, and tokenizing for future use, helps negate this possibility.
A simple way to visualize tokenization is to think of an arcade. Players exchange money at the gate for tokens that allow them to play arcade games. Inside that arcade, the tokens are recognized as money, but outside of that environment, they have no value. In payments, tokens work similarly. The third-party processor stores the customer's card information safely, limiting its use to back-end payment systems. The data is encrypted and stored in a secure vault.
Merchants that use tokenization, therefore, secure customers' card data while significantly reducing the number of systems that can view the data. Minimizing a businesses' risk of liabilities and expenses associated with data breaches. Ultimately, using a third-party processor to collect, process, and tokenize cardholder data will reduce the scope of a merchant's Payments Card Industry (PCI) compliance, mandated for businesses and merchants processing credit card payments. The PCI Security Standard Council establishes security standards, including firewall protection, encryption, and password protection. Merchants are required to abide by these standards to protect customers' sensitive card information. Further, companies that do not achieve PCI compliance may be fined by the PCI Council in case of a data breach, making collecting, storing, and tokenization by a third-party service an easy choice to make.
