Understand the Benefits of Tokenization in Payment Processing

April 16, 2024 | visibility 1048
TABLE OF CONTENT

Table of Content

Tokenization is so powerful in the payment transaction ecosystem. But what does it mean, let’s discuss it today. In this modern era, many things are being carried out online, including money transactions.

Both businesses and individuals rely heavily on online transactions to facilitate the exchange of goods and services. This trend shows no signs of slowing down. 

Statista reports that e-commerce is rapidly expanding, and online shoppers are expected to reach 427 million by 2027. Among the present online shoppers, 47% face security issues. Thus, businesses must provide advanced security measures to their customers while digital transactions take place. 

This is where payment tokenization comes into the picture. It is one of the best practices businesses can implement to secure customers’ information.

Therefore, in this blog, you’ll learn what payment network tokenization is and how it benefits your business. 

Let’s get started! 

Understanding Tokenization Solution

It is a process in which your sensitive payment information is replaced by a unique set of characters called tokens. This token value flows securely into the transaction network without exposing payment details.

These tokens are generated randomly and define no meaning. However, these are stored in a secure vault, known as a ‘token vault’, which reduces the risk of data breach and theft. 

Even if anyone alters the security and gains access to these tokens, they won’t be able to perform a fraudulent transaction, as they don’t have access to the original payment details. 

How Does Tokenization Work? 

It starts when the customer enters their payment information over the merchant’s website to purchase something. 

For instance, they pay using a credit card for a transaction. After transaction initiation, the card details, such as the 16-digit credit card number, are sent to a secure tokenization system that replaces the digits with tokens. 

Further, these tokens are sent to the merchant’s site and used to proceed with the transaction. 

Types of Tokenization 

There are various types of tokenization payments. Let’s discuss some of them briefly. 

1. Vaultless Tokenization

Converts sensitive payment details into non-sensitive characters using algorithms and securely stores the mapping between the two, making it a more efficient and secure option compared to vault tokenization.

2. Platform Tokens

Platform Tokens are like unique coins or tokens created by a digital platform. These tokens can be used within the platform for various purposes, like accessing specific features, making transactions, or participating in activities.

3. Utility Tokens

These tokens grant access to a specific utility or service within a digital ecosystem. They often represent a right to use a particular feature or benefit within a platform. You may use utility tokens to unlock premium features, access specific content, or enjoy enhanced services within a digital platform.

4. Security Tokens

Think of tokens representing ownership or investment in a real-world asset. These tokens are tied to real-world assets like stocks, real estate, or other financial instruments. They often represent ownership or a stake in the underlying asset.

5. Non-Fungible Tokens

NFTs are unique digital tokens representing ownership of specific items, like digital art, collectables, or real estate. They cannot be easily replaced or exchanged one-to-one, making them suitable for various payment scenarios.

How Tokenization Solution Work & Benefits of Tokenization in Your Business. 

 Tokenization benefits 

1. Enhanced Security

All these cyber criminals are waiting for that one chance to compromise the transaction security, to perform data breaches and theft. This can lead to substantial financial loss for businesses and customers. 

Therefore, tokenization enhances security by 50% by eliminating the visibility of original payment details. It reduces the risk of gaining unauthorized access and performing a fraudulent transaction.  

2. Regulatory Compliance

If a company deals with credit card information, it must follow the rules outlined in the Payment Card Industry Data Security Standard (PCI DSS). These rules include having a firewall, protecting stored data, encrypting data during transmission, and restricting physical access to the information.

To ensure the recovery of card tokenization failure and make this more accessible and more affordable, organizations often use tokenization. This is like a unique code for the credit card data. Using tokens helps meet PCI requirements and can remove the need for specific security measures, saving money for businesses.

Many industries have strict rules about protecting data. Tokenization is helpful because it secures sensitive information, making it less likely to break these rules. Since tokenized data is considered less sensitive, it simplifies security checks and company data management.

3. Ease of Data Management 

Businesses can manage the customer’s payment details efficiently with tokenization. How? Let’s see.  

As we have already discussed what ‘tokens’ are, they can be reused for future transactions, eliminating the need to collect and store sensitive data repeatedly. This results in a streamlined process that reduces data management’s complexity and lowers business costs.

4. Unified Commerce

Whether the business serves customers online or through offline stores, tokenization connects all payment channels, making it easier for the business to manage them efficiently. 

Businesses can work wonders by leveraging the integration of unified commerce and tokenization. They can create a flexible and cross-channel payment journey to map their customers. It helps them determine the customer’s behaviour and make data-driven decisions on enhancing engagement. 

5. Flexibility and Scalability

With the continuous increase in online transactions, customers prioritize the security and protection of their payment information. 

Thus, tokenization is one way to maintain their trust and loyalty. By leveraging it, businesses can demonstrate their strong commitment to safeguarding their customers’ data and enhancing their reputation for being trustworthy and reliable.

6. Globally Accepted

The process of tokenization has been widely acknowledged and accepted. Due to its universal acceptance and adoption, protecting sensitive financial information has become a standard practice in the payment processing industry. 

These are some of the prominent benefits of tokenization that are offered to businesses. It is a scalable solution that moves along with the growth of business. It accommodates the increasing volume of transactions without sacrificing security.  

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Some Interesting Facts About Tokenization

By now, we know that tokenization is a powerhouse of security. But beyond that, it offers various other functions as well. 

1. Future Focused Technology 

As the digital payment landscape changes, tokenization is expected to grow. Based on a report by Stripe, the market size of tokenization is expected to reach USD 4.8 billion by the year 2026. This number is justified as businesses of all industries leverage online transactions for customer convenience.

2. Token Evolution

Replacing the card details is a common usage of tokenization, but it can also be applied to other areas of payment processing. The addresses or further shipping details can also be tokenized to ensure a confidential delivery of products to customers. 

3. Frictionless Convenience

With the help of secure payment gateways, tokens can be safely stored to ensure a hassle-free payment experience for repeat customers. This method simplifies checkout by enabling one-click payments and enhances the overall shopping experience. As a result, conversion rates are boosted by 5%, making it a win-win situation for customers and businesses.

4. Subscription saviour

Businesses can now enjoy a seamless and hassle-free way of processing recurring payments. Using tokens allows for automatically charging customer cards without requiring them to enter their payment details repeatedly. This leads to a reduced customer churn rate of up to 15%, resulting in higher business revenue.

5. Not Only For Cards!

Tokenization is not restricted to providing security only to cards. It can be used to tokenize other sensitive data, including bank account numbers, passwords, and additional personal confidential information. 

Optimize Your Tokenization Game with ChargeOn

Now that we have comprehended the concept of tokenization, its working mechanism, and the significant ways it benefits businesses, you might consider utilizing it to enhance the security of your business transactions and offer the same to your customers. 

Therefore, you need a payment processor to implement tokenization into your business. Now you might wonder which could be the best one? Well, fret not! We have got you covered.

ChargeOn is the ultimate solution for your tokenization needs. It is a 100% AppExchange native application that offers advanced tokenization features. With advanced tokenization, you get a payment processing solution that ensures secure transactions in multiple currencies.

Optimize Your Tokenization Game With ChargeOn

You can accept payments without fear of data breaches since your customer’s sensitive bank details are securely stored as tokens. Moreover, this application minimizes the PCI compliance scope, making it easier to focus on growing your business. 

With ChargeOn, you can enjoy seamless Salesforce payment processing while ensuring your customer’s sensitive information is kept safe and secure.

Frequently Asked Questions

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How can I implement tokenization for my business?

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How is tokenization different from Encryption?

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How is tokenization different from multi-factor authentication?

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What is the list of Some Other benefits of tokenization?

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