Tokenization Payment Technology Guide

Tokenization is a major industry technology shaping the way merchants accept payments and use payment data across online and in-store.

The technology has significant potential benefits for businesses. But what exactly is it? How does it work? Read on for the lowdown.

How the technology works

Tokenization is the process of replacing sensitive data with non-sensitive data. In the payments industry, it is used to safeguard a card’s PAN by replacing it with a unique string of numbers that cannot be used to make transactions.

What this means for businesses

There are numerous ways tokenization can streamline a customer payment process. A key example is recurring payments: The first time the customer enters card details these are tokenized and stored, meaning they do not need to be re-entered by the shopper. Subsequent payments can then be made with “one-click” – a feature that Adyen has been offering to businesses for a number of years.  

Another example is for use across multiple channels. For example: A shopper selects an item to buy online and enters their card details, which are tokenized. The shopper then collects the purchase from the shop and is charged at the Point of Sale using the tokenized details.

In both cases the shopper payment process is dramatically simplified, which increases conversion at the checkout stage.

The rise of tokenization

The use of tokenization across the payments industry is set to increase significantly in the near to mid-term future for several reasons:

1. Cost reduction for merchants

PCI Compliance requires that credit card data must be protected when stored. Because tokenization safeguards the integrity of payment data, it also significantly reduces the scope of PCI Compliance for businesses.

2. Improved security

In October 2015 EMV (Europay MasterCard Visa, or chip and pin) becomes mandatory in the US. However, while this will improve security at the Point-of-Sale, it is probable that it will also divert more fraudsters to e-commerce. Furthermore, despite the introduction of EMV, cross-channel fraud (such as harvesting the PAN from POS devices and using them for e-commerce transactions) is on the rise, and attempts to access online payment data are becoming more and more sophisticated. If fraudsters manage to steal tokenized data, they cannot use the stolen tokens to pay online since they are unable to link the token to payment information stored securely by the payment partner.

3. Cross-channel data

Using tokenization across channels gives businesses a single unified view of shopper behavior across online and in-store. This means a treasure trove of data that can be utilized for better risk management, increased conversion, and loyalty programs across channels.

To help you familiarize yourself with the key points of how Adyen uses tokenization, we have put together a short payment technology guide. Click the link below to find out:

  • How tokenization technology works and who generates payment tokens
  • Which businesses should be thinking about tokenized payments
  • How Adyen supports the technology, and benefits for businesses

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