Payment tokenization is an excellent tool for any online payment processing system, providing extra security and helping to avoid PCI DSS compliance verification and other regulations. In this article, we'll explain payment tokenization in detail and how it works. We'll also provide the information you need to integrate it with your payment processing system.
Before this, we recommend you familiarize yourself with a guide for creating a custom checkout engine, where we explain the whole checkout system workflow, including tokenization: How to build a custom checkout engine from scratch.
Tokenization is the process of replacing sensitive data with a non-sensitive equivalent called a token. Tokens have no value and cannot be exchanged for sensitive information. The sensitive data is stored outside of the internal system used by the business, and it can safely use the tokens.
There are many tokenization use cases, and payment tokenization is only one of them. In the same way, there are many tokenization types and algorithms, but this article will focus solely on payment tokenization.
In a nutshell, payment tokenization is a process that allows replacing sensitive payment information, such as card number, expiration date, and CVC, with non-sensitive, irreversible tokens and then using these tokens for any further payment operations (transactions). The payment system should not access payment data in any way (on the web form, on the server side, etc.); it should remain unaware of it. We will explain how to accomplish this below.
Before this, it's crucial to note that there are two main reasons for implementing payment tokenization: additional security and avoiding PCI DSS compliance. Let's examine these points.
You're likely building a secure and reliable system, but no one is completely safe from hacker attacks. It's possible, in theory, that your system could be hacked and data could be stolen. If the data includes customer payment information, you'll be in a difficult situation: you'll need to reimburse customers for any damage, face lawsuits, and risk losing all your users. Your business may not survive such an incident.
On the other hand, if you're using payment tokenization, potential hackers may only obtain non-sensitive tokens, which don't contain any sensitive information and can't be exchanged for it. These tokens are random strings with no value, so they can't be used by potential hackers, and your customers will remain safe.
The second reason for implementing payment tokenization is to meet Payment Card Industry Data Security Standard (PCI DSS) compliance. PCI DSS requires that any system that processes, stores, or transmits sensitive payment information must pass a compliance validation.
In a nutshell, your system must meet 12 security requirements, which international payment organizations review regularly (annually or quarterly). This adds a lot of complexity for you in terms of development, maintenance, and legal aspects.
Preventing this headache is at the core of tokenization. By using it, your system won't handle sensitive payment data, so it won't need to comply with PSI DSS. Instead, the tokenization provider, which is PSI DSS compliant already, processes sensitive data and is responsible for its security and proper handling.
A payment tokenization provider is a PSI DSS-compliant service that stores sensitive payment data and provides tokens that can be used to interact with that data.
There are many payment tokenization providers to choose from. Consider your business needs, such as the tokenization algorithm and token schemes, security certifications, 3rd-party integrations, and pricing model. We suggest selecting the most popular providers, like TokenEx, as they are reliable, offer a variety of features, and are easy to integrate and troubleshoot.
If you’re unsure what provider is best for you and need a consultation, feel free to contact us at email@example.com.
At first glance, tokenization may seem tricky, but it's actually quite simple. There are two key points to remember:
Remembering this, it’s easy to understand that once the customer has entered their payment info, you need to exchange it for a token and use this token for any further operations with their payment info.
Let's add the details and examine how it works in a real-world application, using TokenEx as an example.
Remember that no part of your system should be aware of the real payment information. It is impossible to directly get, update, delete, or log it in the tokenization workflow. Otherwise, the purpose of payment tokenization will be lost.
In this article, we’ve explained what payment tokenization is, how it works, its benefits, including additional security and avoiding passing of PSI DSS compliance, and how to choose a tokenization provider. We’ve also analyzed in detail its implementation workflow using a real-life example.
You may still encounter many challenges on your journey, just like we did while creating Eye4Fraud RapidCheckout, the smartest and fastest checkout on Earth. If you have any questions or need consultation, please contact us at firstname.lastname@example.org.