Your guide on payment tokenization

Tokenization is about replacing sensitive information with non-sensitive data to protect the primary account number (PAN) on a card. It accomplishes this by substituting the PAN with a distinctive set of numbers known as tokens.

A payment service provider can automatically create payment tokens instantly by converting the primary account number (PAN). These tokens are designed for specific online purposes, such as e-commerce transactions or transactions with a particular merchant, enabling secure tokenized payments. 

Tokenized payments use a token instead of the PAN, to protect the PAN data during transactions. The risk of fraudulent use of the token is very low, even in the event of a data breach and access to payment tokens. This is the fundamental advantage of using tokenization to safeguard.

Adyen's tokenization service safely saves customers' card data and generates a unique token. Merchants can use this token for subsequent purchases, enhancing security and convenience. 

As an acquirer, Adyen is capable of accepting tokens created by other token service providers, such as major card schemes and digital wallets. For instance, Apple Pay utilizes payment tokens for both online and contactless in-store transactions, all of which Adyen can seamlessly process.

Tokenization is suitable for any business that relies on a subscription-based model or on repeat customers. 

Tokenization is also of particular interest to businesses wanting to give as smooth customer flows as possible. Tokens can be securely stored and used for one-click and zero-click payments, making online payments effortless and secure.

There are a number of benefits to tokenization for merchants.

• Data protection and security

Security breaches are expensive for customers and businesses. Tokenization significantly improves payment security by replacing sensitive data with randomly generated tokens. This protects both merchants and customers from data breaches and theft.

• PCI DSS compliance

By minimizing the storage and processing of sensitive payment data, tokenization helps businesses adhere to industry standards like the Payment Card Industry Data Security Standard (PCI DSS). PCI compliance is essential for maintaining customer trust and avoiding penalties. This is also a huge driver in reducing costs. 

• Reduction in fraud and chargebacks

If fraudsters manage to steal tokenized data, they can’t use it to make payments. They can’t link the tokens back to the payment information that the payment provider securely stores. With improved security measures, businesses will likely see a reduction in chargebacks and disputes, leading to more stable and predictable cash flows.

• Enabling one-click and zero-click payments

Tokenization enables merchants to securely save payment data through tokens so that customers can make future purchases without re-entering their details. One- and zero-click payments significantly increase conversion at checkout by streamlining the payment process for customers.

A more advanced version of tokenization is network tokenization. 

In payment tokenization, the payment service provider, like Adyen, stores the customer’s card details, like the PAN, and generates tokens that merchants can use for payment transactions. 

In network tokenization, the card networks like Mastercard, Visa, and American Express, are the ones to store the PAN and generate the tokens. Because the schemes maintain the end-to-end tokenization process, network tokens are always up-to-date even if the card details expire.