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A Payment Tokenization Primer

A Payment Tokenization PrimerFraudsters continually look for new ways to get their hands on sensitive credit card and bank account information. Merchants can reduce their risk of compromised data by employing a highly-effective data security method known as tokenization. 

When applied, tokenization frees merchants from storing data in their systems, reduces PCI scope and liability, and saves money on pricey audits. 

What exactly is tokenization and how does it work?

Tokenization Simplified

On any given typical consumer credit or debit card, you’ll see the name of the account holder, a 16-digit personal account number (PAN), expiration date and CVV code. All of this information can be tokenized. Using this security method, the original PAN never enters the merchant's payment system – just the token. The merchant can use this special token ID to keep records of the customer

As an example, when a merchant swipes a customer's credit card, the PAN is automatically replaced with a randomly generated alphanumeric ID (“token”).

  • 4321-1234-5678-8765becomes something like a7f6%gf83fhAu on the merchant’s end

The token then gets transmitted to the payment processor who de-tokenizes the ID and authorizes payment.

  • a7f6%gf83fhAubecomes 4321-1234-5678-8765 on the processor’s end

Only the payment processor can read it — the token is meaningless to any other party (including the merchant). If the token gets into the wrong hands, the thief has no way of linking the token back to the original personal account number.

And, this token is only valid with that single merchant. The ID can never be used to initiate payment with another retailer.

Download White Paper: PCI Tokenization

Two Ways to Process Transactions

Compared to a 16-digit PAN, tokens look complicated. Perhaps this works for you and your business, but if you already have a numbering system integrated with your business software, it’s possible to use that for your unique token identifiers.

For instance, BluePay’s TokenShieldSM service allows merchants to process secure transactions two ways:

  • Customer-Defined Tokens – use your existing customer numbers as unique token identifiers. Conveniently update payment information associated with existing tokens, and easily attach to recurring billing transactions.
  • BluePay-Defined Tokens – use token identifier numbers provided by BluePay. Eliminate the need to create your own numbering system, and easily transition data to other software platforms.

Whichever method you choose, tokenizing your transactions is essential to protecting your data and increasing customer confidence.

What Can Be Tokenized?

A major advantage of tokenization is that it can be used for any type of personally identifiable information. U.S. businesses primarily use the technology to protect financial data, but in countries with stricter consumer privacy laws, organizations are often required to protect a much broader range of consumer information. Many businesses also rely on tokenization for:

  • Patient records
  • Employee files
  • Usernames
  • Passwords
  • Email addresses
  • Customer accounts 

Want to Learn More about Tokenization?

Tokenization is a secure and cost-effective way to protect all of your customers' information from thieves and hackers — especially sensitive financial data. As pioneers of tokenization, we make implementing this feature extremely easy.

Speak to a payments representative today to learn more about tokenization (and its many benefits).


Topics: PCI Compliance and Fraud Prevention

Welcome to the BluePay Blog!

Whether you're a small business, an enterprise corporation, a financial institution, or a software partner, we have created a series of blog posts to help you and your customers, learn more about the complex nature of payments. Take a look to learn how payments can help to simplify your business operation, and may even help to grow your revenue.

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