Everything You Need To Know About Tokenization of Credit Cards

Whenever you enter your credit card information on a website or app for making a transaction, you might have noticed that the information is saved there. Now, if fraudsters hack your account on a retailer’s website or a digital payment service provider’s website, they can easily get your personal and financial information that is stored there. However, it is not easy, but still, there are chances that such incidents can take place. In order to ensure the safety and security of your sensitive financial information, the Card networks and digital payment services have come with the method of Tokenization of Credit Cards, which can help you keep your personal information safe even if someone unfortunately hacks your accounts on retailer websites. To know more about Tokenization and how it works, keep reading:

What is the Tokenization of Credit Cards?

Tokenization of credit cards is a process in which your personal financial information is secured by replacing it with a random unique number, called a token. This is a newly developed method to secure your personal sensitive information so that no fraudulent/unauthorized transactions can take place. Most of the major digital payment services, like Paytm, have stated offering tokenization of credit cards and other financial information to their customers for making online purchases on various merchants and retailers’ websites.

How Does Credit Card Tokenization Work?

Tokenization ensures a higher level of security to a cardholder’s personal financial information, like card number, PAN number, etc. When you initiate a transaction using your credit card on any retailer website/app, you enter your personal and credit card information. Then that website/portal/payment service asks your card network for your unique token number. After that, the card network asks your card issuer to approve the token request and once it is successfully approved, the token number is issued. This information is replaced by any random and unique number, which is called a token. This token is generally valid on a selected device, for a fixed number of transactions, and on a particular retailer’s website.

Let us understand the process thoroughly by taking an example of the Visa Token Service, which provides different financial institutions and payment service providers with an opportunity to offer secure payments via credit card tokenization to their customers:

•  Credit cardholders add their Visa credit card with an online financial institution or a digital payment service provider (like Paytm). They enter their credit card number, PAN number, and other required information.
• The digital payment service provider requests Visa to issue a unique Token number to secure a cardholder’s information.
• Visa forwards the request to the card issuer/bank and asks for approval.
• Once the card issuer approves the Token request, Visa proceeds further to replace the cardholder’s PAN number with a unique randomly generated Token number.
• Visa sends the Token number to the Payment service that requested it. This token number doesn’t last forever but is valid for a fixed number of transactions, and on a particular device only.

Benefits of Tokenization of Credit Cards:

It is very clear that tokenization is aimed at keeping your personal financial information safe on a retailer’s website and hence is only advantageous to everyone. When your information is replaced by unique token numbers, it becomes almost impossible for hackers to decode it. Even if they hack your account somehow, they will only see the token number and won’t be able to decode this number to get your personal information as it is just a random number which means nothing. So, it is advisable for you to make online payments via a digital payment service that offers tokenization instead of directly saving your card information on their website/app. For example, you can use the Paytm app for purchases on Myntra, Oyo, and many other merchants on which the app provides you with security via Tokenization.

Bottom Line

You never know whether the website/app you are purchasing goods from, is genuine or not. Sometimes, it can just be a trap of fraudsters to get your personal financial information that you save there for payment. The process of tokenization of credit cards seems to be very beneficial to avoid such situations as it is impossible for anyone to get your personal information by decoding a random number, i.e, Token. However, you might think of some genuine websites and think that there is no harm in saving your information there, but it is always better to be safe. You must ensure to add your card with a digital payment service that provides tokenization and make transactions only through that and not by just entering all your details on every website.

However, the process of tokenization is very new, and not every major retail, merchant, and digital payment service is providing it currently, but you will get to see it on every authorized website, by the beginning of next year. It can be considered a very right step taken by the RBI to ensure the safety and security of their customers’ personal financial information.