Credit Card Tokenization: Definition & How it works

Credit Card Tokenization is a process of removing sensitive data from a company’s internal network database by putting randomly generated unique placeholders(digits). For instance, if you look at your credit card, it will be shown as 0007-8887-1234-5678, but after credit card tokenization, it will look like EXTXYEAJXQ23X.

As you know, credit cards have their own set of pros and cons, but tokenization creates an extra layer of security to the customer’s credit card information which saves them from any scams or fraudulent activities.

A huge of business owners are opting for this option in the United States, as it is easy to use and cost-effective compared to end-to-end encryption.

How Does Credit Card Tokenization Work?

Credit Card Tokenization starts like a regular credit card process. After completing a successful transaction using your credit card, tokenization will remove all the sensitive data with a non-sensitive credit card token number.

In some scenarios, you might not want to purchase a product or service, but some companies do require your credit card data to offer a first-month free service. Here, the company will contact your back to validate your credit card once it is validated.

You will not be charged any amount as this is completely a verification process. After the process, the company will remove your credit info with a reference number known as a token which will be linked to your credit card.

In simple words, the token number is not your credit card or bank account number but a random set of digits which help the company to know which card belongs to you.

Benefits Of Tokenization

• Tokenization removes sensitive customer data like credit card numbers and bank account details which helps the customer to save guard from any fraudulent activities.
• Reduces the scope of PCI compliance by reducing the number of systems to access your credit card information.
• Tokenization is cost-effective if compared with end-to-end encryption.
• Simple process and Easy to Use for businesses.

Frequently Asked Questions

Can the data of tokenization be reversed?

No, the data of tokenization can not be mathematically reversed unless you have an access key used to create the token.

Is Credit Card Tokenization mandatory?

No, Credit Card Tokenization is not mandatory. It is your decision to choose it or not. People who don’t want to tokenize their credit card can use the card as usual for transactions.

Is Credit Card Tokenization hacked?

No. Tokenization disconnects the Private Account Number(PAN) with a random token, so it is useless for hackers to do anything with the token number.

Is Credit Card Tokenization safe?

Yes. Credit Card Tokenization is much safer as your card details are not shared with the merchant.