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Insights and Expertise

The ERA of tokenization Defining tokenization

is now Tokenization first appeared on the scene in 2013 as a
security standard. However, it quickly grew in popularity,
and by 2014, Mastercard had launched its Digital
Enablement Service with tokenization, securing billions
of transactions that year.

The process of tokenization creates a "token," which is a
randomly generated sequence replacing your 16-digit card
primary account number (PAN). These tokens can't be
decrypted without the payment network that issued them;
hence, even if hackers were to access the token database,
they'd be unable to use them, saving billions of dollars in
the long run.
How tokenization works
By Anne Willem de Vries
Silverflow When you input your card details into a digital wallet or
an online merchant's site, the payment system requests a
ayment transactions should not be overly token from the payment network. This token is stored in
complicated; only a little (albeit, specific) infor- place of your actual card number.
mation is needed to process them. Today, the
P required simplicity of online shopping has For example, if you save your card details with an
changed this significantly, but behind the scenes, complex ecommerce site, the site stores the token rather than your
security systems are working hard to keep your payments real card data. During a transaction, the token is combined
safe. with a one-time cryptogram generated by your device or
merchant account to authenticate the payment securely.
Gone are the days when merely entering a card number Why tokenize?
and expiration date sufficed to complete a transaction.
As cyber threats have grown more sophisticated, so have Tokenization provides multiple advantages for all payment
the layers of security and information required to make stakeholders:
payments.
1. Minimized data usage: Aligning with the require-
Whether it's the addition of CVVs or the potential sharing ments of the General Data Protection Regulation
of data such as your IP address and social media activity, (GDPR), the process of tokenization helps merchants
consumers must be more vigilant than ever about the reduce the volume of detectable information from cus-
information they provide. tomers.

Hackers can access stolen payment details on the dark web 2. Simplified compliance: Merchants using tokeniza-
for just $10 without breaking into the database. NordVPN tion reduce their burden of complying with the Pay-
researchers discovered that 1.6 million card details ment Card Industry (PCI) Data Security Standard
are illegally available for anyone to use (see http://bit. (DSS) and related security standards, saving time and
ly/3GYw716). Ensuring security should be at the forefront resources.
of the process for all payment stakeholders. Merchants
continue to demand information to develop alternative 3. Enhanced security: Tokens eliminate the need for
means to protect cardholders. merchants to store sensitive card details, reducing the
risk of data breaches. Even if a hacker gains access to
Payment processors know fraudsters are unlikely to have stored tokens, they're useless without the correspond-
access to all the data required to impersonate a genuine ing payment network.
customer. Consequently, the more data, the better the
fraud prevention. However, this approach also introduces 4. Increased fraud prevention: Transactions using to-
significant risks. With 40 billion records exposed in 2021, kens are less likely to be fraudulent. Fewer false de-
sharing vast amounts of personal data digitally creates clines mean a smoother checkout experience for cus-
opportunities for bad actors to intercept and misuse tomers.
sensitive information (see https://bit.ly/42Nt70b). 5. Seamless automation: If your physical card is lost or
What if there were a way to secure your card information expires, tokenized transactions can continue uninter-
so that even if it were stolen, it would be useless? Enter rupted. The payment network updates the token auto-
tokenization: a technology transforming how we think matically when your card details change.
about payment security.
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