What is tokenization and why to use it payment processing
Online payment security is always a top priority in payment processing, even more important than a positive user experience actually. Payment data is sensitive individual information, and if compromised, it may allow fraudsters to freely debit funds from payers' cards. Therefore, payment systems and merchants strive to jointly ensure the most secure environment for payments, allowing payers to be confident in the safety of their personal data and to pay for goods and services on the website.
In this regard, tokenization is the number one method and the most commonly used way to encrypt personal payment data. Thanks to it, storing this data is possible in a form that does not allow fraudsters to access and use it for their purposes. Why and how it works will be discussed in today's article.
What is Tokenization?
Tokenization is the process of encrypting (replacing) real payment card data with a special set of digital symbols. Thus, the system generates a unique «token» that will denote the payer's card but will not be the card itself. Payment systems always use encryption because it allows for the maximum possible data security. At the same time, tokens are stored on secure servers and are protected from the possibility of leakage.
Token formation occurs during the client's first payment on the merchant's website. Technically, the process consists of several steps:
- First entry of card data: At this stage, the client enters their card data (number, expiration date, and CVV code) in payment checkout, which belongs to the payment system. In addition to the funds being debited at this moment, a tokenized card is also formed simultaneously.
- Token formation and storage: After the card connects to tokenization system, the system forms token and records it on its servers for storage. This is where the data will be stored, and this is where merchants will «refer» for each subsequent payment.
- Transfer of token identifier to the merchant: If merchant has PCI DSS certification, which we will discuss in more detail below, they receive the token identifier, which they can store and use for subsequent transactions.
- Use of the token in future payments: Thanks to the tokenization procedure, each new payment on the merchant's site can be made using the previously saved token. On the website, it will be displayed as a masked card, and the merchant will communicate with the payment system using the identifier they have. The payment system will understand which token needs to be used, and funds will be debited from the correct card.
Although the procedure has some technical complexities and requires serious cybersecurity, its implementation is possible almost seamlessly today. Most payment providers and payment orchestration systems offer a full range of services for merchants, allowing them to immediately set up the correct payment processing.
Advantages of Tokenization
Among the main advantages that tokenization can boast are:
- Payment security: This is precisely what the technology was invented for and is successfully used. Storing real card data in databases can lead to leaks or theft of information. Dishonest employees, hackers, or even accidental security breaches pose a serious threat. Such a situation cannot be allowed under any circumstances. A leak of payment data from even one payment system can cause global damage.
- Improved user experience: In addition to secure payments, it is also more convenient. One of the main functionalities of tokenization is the ability to constantly refer to a previously formed token. In practice, this means the functionality of «saving payment method» for subsequent payments. Similar mechanics can be found on many sites. Merchants can offer to save payment data of a previously used card for future payments. In this case, token of the card will be saved, but merchant itself will in no way gain access to the card data.
Today, tokenization is a basic procedure in card processing, and it is practically impossible to implement processing without it. It also underlies the host-to-host interaction between the merchant and the payment system.
Host-to-Host integration of payment systems
The most preferred and convenient way to integrate payment methods is host-to-host. This integration method allows to create a simple payment process, as the entry of card data will occur on the merchant's website, in the same design and functionality that the payer constantly uses. Additionally, problematic situations can be avoided when opening a new tab or window, as well as blocking pop-up windows, which often occurs when launching a third-party payment page. After all, client needs to go to another website to make a payment.
Host-to-host integration literally «connects» payment system and the merchant's website, which for the user looks like single website. When integrating payment page (or redirect), achieving such an effect is not possible, as payer will definitely be redirected to payment provider's page to complete the transaction. What is the difference between these integration methods, besides the final appearance?
The main difference in this case is the interaction between payment system and the merchant regarding client's payment data. When using host-to-host integration, merchant will have direct access to the client's card data and will independently transmit it to the payment system. This process carries certain risks, and therefore, such a payment acceptance method cannot be obtained just like that. All merchants who want to accept payments on their website and independently handle payment data must undergo an audit and obtain a PCI DSS (Payment Card Industry Data Security Standard) certificate, which confirms the quality and proper storage of payment data. This imposes obligations on the merchant to comply with requirements of payment systems Visa and Mastercard and to constantly improve their data storage and protection systems. PCI DSS standards are changing, and from time to time, audits must be conducted to comply with them. PCI DSS audits are conducted by Qualified Security Assessors, who can issue the necessary certificate.
Certification procedure is quite expensive, so not all merchants can afford it and consider it justified for their business. This is why option to pay directly on the website is most often found on large e-commerce platforms or gaming portals that operate worldwide and accept thousands of payments a day. Small or start-up projects usually operate without PCI DSS and, consequently, can accept payments only through redirect integration — on the third-party page of the payment system.
The security of payment card data is directly related to the choice of integration method, and it is precisely from this functionality that payment providers base their cooperation with the merchant. Confidence in a secure payment process will allow payers to be calm about their data and trust both the merchant and payment system that processes payments. If you are looking for a suitable payment provider and are concerned about building a secure payment path on your own website, it's time to contact Monoup. Our specialists will help you build the best payment process and achieve that combination of «price and quality» in payment processing for your website that you look for.
