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Tokenization

Tokenization

In the context of payments, tokenization is identified as a system for replacing sensitive bank card data with tokens, which are numeric or alphanumeric identification codes. Tokens are used during the digital transaction, allowing the payment to be finalized without the user's data being exposed during the process. 

Tokenization has several advantages, especially regarding the issue of security and the shopping experience that merchants provide to consumers. 

This in fact helps the merchant in the phase of saving payment card data, relieving them of the compliance with the security standards developed by the Payment Card Industry Security Standards Council (PCI SSC), very rigid regulations that sometimes require costly implementations. Tokenization services allow the merchant to operate in compliance with PCI standards without having to resort to burdensome certifications, as the card data is not saved on the merchant’s servers but on the service provider’s ones.  

The use of tokens applied to payments not only allows the merchant to offer certain security guarantees, but also facilitates the customer in making purchases after the first transaction, to personalize their customer journey by saving payment cards and having more possibilities at the checkout. All this translates into an improved shopping experience which also benefits merchant’s sales. 

Today there are 2 types of tokenization services: 

  • Proprietary tokens 

These are tokens offered by PSPs and offer most of the features typical of these services. From managing one-click payments to recurring ones, PSP tokens are an essential tool for specific areas (e.g. recurring bills, fees, etc.). 

  • Network tokens 

This type of token has several additional advantages over those of PSP, such as the automatic updating of card data (e.g. expiration date) which prevents the merchant from doing any activities to keep the token valid over time. 

You can compare the two types of tokens in the insight What is the role of tokenization in international paymentsexternal link and learn more about tokenization by downloading the Whitepaper Tokenization: the strategic tool for PSD2 compliant Ecommerceexternal link

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