Unveiling the significance of credit card tokenization for safeguarding transactions

While booking a flight on your favourite travel app or shopping online, you may have noticed that your credit card details automatically appear as you proceed to pay. How convenient, you would think. But how unsafe, RBI thought. That’s why the apex bank came up with credit card tokenization. 

Introduced by RBI as card-on-file tokenization, the guidelines on card tokenization became effective from New Year’s Day 2022. Very briefly, it is the process of converting the card details into a unique token, which is then used for transactions made using the card.

How does tokenization work?
 

Starting July 2022, merchants, payment gateways or payment aggregators are not allowed to store the customer’s card information. Tokenization replaced the saved card details experience as the information is now saved in the form of tokens.

Credit card tokenization works in the following manner:
 

• While making a credit card payment on an online platform, the customer enters the card details 
• While initiating the payment credit card tokenization is selected
• The receiving company uses a tokenization service that converts the credit card information into a string of surrogate numbers, i.e., the token. The token is created as a combination of the card details, the token requestor and the device
• The service may be provided by a remote token service provider. Alternatively, the card issuing bank may provide the token
• The merchant receives the token and forwards it to the issuer for approval. They compare the token with their information to check its validity. They can choose to approve or decline the transaction
• Once the issuer approves the token, the payment gets authorised. During the entire process, the merchant will not receive the card details but will only initiate the payment transaction. They get the unique token and the authorisation only
• The transaction gets completed as the money is deducted from the customer’s account and sent to the merchant/platform
• The token remains saved and can be used if the customer shops on the same platform again in the future
• It must be noted that credit card tokenization doesn’t eliminate Additional Factors of Authentication (AFA) like OTP confirmation

The use of credit card tokenization
 

Credit card tokenization can be used for card payments made against online purchases, in-store payments at merchant stores and PoS machines, and in-app purchases or mobile-based payments.

Card tokenization can be used by customers without paying any charges. It can be done across different devices, including phones, tablets, computers, wearables, and IoT devices. The tokenization process can also be reversed to the actual card details, a process known as de-tokenization.

​​Why credit card tokenization is important ?
 

Unlike a regular card transaction, the merchant cannot see or handle the credit card details while processing the payment through a tokenised card transaction, making credit card tokenization a safer payment method.

Card tokenization is beneficial for customers as well as businesses.
 

• A safer option—Using and storing sensitive card data can make it susceptible to digital fraud and cybercrimes. A token, on the other hand, is useless to a hacker. Even if they intercept a credit card transaction, they will only get hold of the token. 
• Better compliance - A token is not considered to be sensitive information and doesn’t fall within the purview of the Payment Card Industry - Data Security Standard (PCI DSS) regulations. The data storage is less risk-prone as the data is not available outside the data vaults and original point of capture. Therefore, a business looking to achieve PCI compliance can easily do so through tokens.
• Less security pressure on businesses - For businesses, debit and credit card tokenization lightens the burden in terms of security management. Tokenization protects these businesses from financial losses caused by cyberattacks and compromise of sensitive customer data. They can end up requiring lesser investments in credit card security measures and gain customer faith due to the transparency of credit card tokenization. 
• Convenience – Customers can use credit cards with a greater sense of security, thanks to credit card tokenization. Payments with a tokenised credit card are done with a single click. They can use their tokenised card for all future credit card transactions in the platform with less time and risk involved. 
• Interoperability – Tokens are network and processor-agnostic. Credit card tokenization can be opted for across different devices and payment platforms. It promotes a uniform payment experience for the customer through a seamless and safe process.

Tokenization vs traditional methods
 

In the traditional method, merchants initiate the transaction by sharing the transaction details and card details with the card issuing company. The issuer approves the payment and deducts it from the customer’s account. The card details shared by the customer are then stored by the merchant/platform. This makes subsequent payments faster and also makes personal card details available to the merchant. 

It was observed that 30% of payment conversions happen through saved card details. However, it was also noted that 32% of failed payment attempts were abandoned by customers.

Credit card tokenization ensures that merchants and platforms don’t need to capture, process and store card information. It retains the token information so repeat purchases are faster. It can reduce the instances of failed payments and abandoned carts as well. 

Towards safer credit card payments 

Credit card tokenization can be seen as a breakthrough technology in the entire realm of cashless payments. With a single shift of technology, the sensitive credit card data of the customer is now no longer out in the open. With merchants not privy to such data, compliance and security maintenance becomes much more manageable for them. While achieving all of these, the ease and convenience of credit card payments are retained in the post-tokenization world.  

​​Tokenization ready
 

For IDFC FIRST Bank Credit Card customers, credit card tokenization makes their payments faster, data safer, and experience better. IDFC FIRST Bank offers PCI DSS-compliant credit cards that are tokenization-ready. You can enter the card details, choose ‘tokenise your card’, receive and enter the OTP and create the token. 

Apply for your IDFC FIRST Credit Card and enjoy a safe and smooth tokenised payment experience.

 

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