What is Payment Tokenization? – Fintech Explained By SimpliFi
Dubai, UAE - August 12, 2022
Tokenization has become a major buzzword these days and is often mentioned in the same breath as data security, blockchain, cryptocurrency, and NFTs.
In payments, tokens play an integral role in adding an extra level of security to sensitive payment card data.
In this article, we will answer your question ‘What is payment tokenization?’, and take a closer look at the concept of tokenization in the payments ecosystem.
Without further ado, let’s dive right in.
What is Tokenization in simple terms?
In the simplest terms, tokenization is the process of securing sensitive data by exchanging it for a non-sensitive equivalent.
When applied to data security, tokenization is the act of substituting sensitive data with surrogate values – called tokens – that have no exploitable meaning or value.
These tokens are the reference, or identifiers, that map back to the original, sensitive data.
What is Payment Tokenization?
In the payments industry, tokenization is used to safeguard a card’s PAN (Primary Account Number) by exchanging it with more secure data.
The key strength of tokenization as a security measure, lies in the fact that card PAN numbers are not transmitted during transactions. When tokenized cards are used for payments, actual card details are held safe in a secure digital vault, and tokens are used instead of exposing sensitive data.
If a fraudster tries to intercept a transaction, all they will find is useless tokens, not any real card information.
Types of Tokenization
- Security tokenization
Traditionally, security tokenization – also referred to as non-payment or acquirer tokenization – has been used to protect cardholder data and personally identifiable information (PII).
When payment transactions are complete, security tokens are designed to protect sensitive information when ‘at rest’ within a merchant’s database. This involves acquirer processors tokenizing cards using specific token formats, helping merchants protect sensitive data and meet PCI requirements. Credentials can be stored for future, recurring payments, and seamless checkout experiences.
- Network tokenization
Network tokenization is a type of payment card tokenization offered by the payments network—Visa, Mastercard, Discover, American Express, etc.—that replaces primary account numbers (PANs) and other card details with a token issued by the card brand.
When implemented properly, network tokenization ensures secure remote commerce throughout the payments ecosystem by removing the need for merchants or third-party providers (Known as Token requestors i.e. ApplePay, GooglePay,,etc.) to expose themselves to the risk of handling the raw PAN and other sensitive cardholder data.
SimpliFi helps its clients launch tokenized card products which can be provisioned on ApplePay, GooglePay, etc. with minimal overhead work required by its clients.
What Does a Token Look Like?
Token formats are categorized as: Format preserving or non-format preserving.
Format-preserving tokens maintain the look and feel of original card data.
On the contrary, non-format preserving tokens do not resemble the data in original cards and might also include alphanumeric characters.
To illustrate:
- Format Preserving
For example:
Original Card Number
1222 1111 1111 2222
Format Preserving Token
1222 7546 3498 2222
- Non-format Preserving
For example:
Original Card Number
1222 1111 1111 2222
Non-format Preserving Token
2e5ghfjf-te635yr-7637eb-u9jy76
Tokenization AND PCI Compliance
According to the PCI DSS, “Tokenization solutions do not eliminate the need to maintain and validate PCI DSS compliance, but they may simplify a merchant’s validation efforts by reducing the number of system components for which PCI DSS requirements apply”.
In this case, tokenization can be considered as a best practice to reduce PCI compliance scope – thus reducing the costs involved with meeting and monitoring PCI requirements.
It is simply one ingredient of an entire data security program that could qualify an organization for a PCI compliance certification.
Want to find out more? Get in touch with our team today!