The Basics of Tokenization.
First, what are Tokens?
Tokens are unique, randomly generated strings that replace sensitive data, like account numbers (PANs).
They can't be reverse-engineered, making them a secure way to handle sensitive information.
Payment Tokenization:
This process replaces sensitive data with a token stored in a secure vault by a token creator (acquirer, issuer, or payment processor). Merchants use tokens to authorize transactions without ever handling the original data, reducing security risks.
Types of Tokens:
1. Non-Format Preserving: Tokens don’t resemble original data
2. Format Preserving: Tokens retain format but scramble numbers
3. Selective Masking: Keeping some original digits for verification
4. Single vs. Multi-use: Single expire after 1 txn; multi-use don't
Types of Payment Tokens:
1. Acquirer Tokens: Restricted to specific merchants
2. Issuer Tokens: Created by card issuers for digital wallets
3. Network Tokens: Produced by credit card networks
4. Payment Tokens: Usable across multiple locations
5. Merchant Tokens: Customized for specific merchants
Tokenization enhances security and simplifies compliance for businesses handling sensitive payment data.
As tokenization becomes more widespread, it will continue to be a crucial tool in protecting both consumers and merchants from fraud.
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