When it comes to eCommerce and online transactions in general, security is by far the biggest concern for all parties involved – from customers to retailers, to solution providers and, ultimately, banks.
Considering how sensitive and vulnerable to attacks online transactions are, it’s wonder how more money isn’t lost to hacker attacks each day. Fortunately, there are mechanisms in place that prevent this from happening on a larger scale, but we can all agree that online transactions could definitely be a bit more secure.
With this in mind, the people whose job it is to figure out how to make things safer online have come up with an interesting concept that has already caught on and changed the way online transactions work – tokenization.
What Is Tokenization?
In short, tokenization can be defined as a data security process that converts credit card numbers into a unique symbol that has no intrinsic value and is therefore of no interest whatsoever to hackers and other attackers.
Most security breaches, in which credit card information is stolen and misused, start the same way. When making an online purchase, a customer enters his or her credit card number and other sensitive info into the form at the eCommerce site, which is then sent to the merchant’s server. It is precisely there where most attacks take place.
Moreover, many merchants store credit card information for future reference, as it saves time for everyone involved. In a “normal” credit card transaction, the information travels a long way. Say you’re the customer. Your data first travels from your browser, to the eCommerce website, through the network to the credit card processor, card associations and finally the issuing company. Obviously there is a lot of room here for something to go wrong. And that’s where tokenization comes in.
How Does It Work?
With tokenization, the payment processor transforms your actual credit card number, for example 1111 2222 3333 4444, into something absolutely unusable and nonsensical to whomever is lurking from the outside, looking to snatch it, like G12H7759j34b0KU5c4. To a hacker, this piece of data is worthless. There is nothing they can do with it.
And still, to everyone involved and authorized, this data is enough to ensure a smooth transaction. Transformed like this, the data can travel safely through all the channels it needs to travel, without the risk of being stolen.
Who Can Benefit From Tokenization?
Pretty much everyone involved. Let’s start with merchants. Instead of credit card data, what is being sent back and forth, as well as stored for future use, is a token, which we said is useless to everyone other than the payment solution provider or the credit card processor. The merchant doesn’t even see the credit card information, let alone store it in a place where it can be stolen fairly easily.
Merchants no longer feel the enormous pressure of protecting other people’s valuable information and consumers can relax knowing that their information is safer than ever before.
Tokenization is particularly useful for businesses that do a lot of pre-orders. Oftentimes, a company will announce a new product or service months before it becomes available for purchase, allowing their customers to pre-order and thus make sure to get their copy of the desired item. This means that a lot of payments are accepted now, only to be processed and completed at some point in the future.
Meanwhile, the company will hold on to them, i.e. store them on their servers. This situation is ideal for fraud and security breaches involving stolen credit card info. With tokenization, the companies can keep the data secure, manage and adjust their customers’ orders without having to ask for the credit card info again, and, ultimately, to promise (and deliver) much higher security.
This sense of safety and security results in increased customer loyalty but also in higher conversion rates and a growing customer base.
Finally, tokenization does not mean that hacker attacks won’t ever occur on the server. It just means that if and when they do occur, the hackers won’t find any customer credit card information there and, instead of paying damages and losing a lot of customers, merchants will be able to focus on repairing the weak spots that allowed for the breach to happen.
Tokenization does not solve all security issues nor does it prevent breaches completely, but it definitely does make eCommerce a much more secure and reliable experience for everyone involved.