Payment tokenization guide

Tokenization is a process of replacing sensitive data with non-sensitive ones. It safeguards a card’s primary account number (PAN) by replacing it with a unique string of numbers called tokens.

A payment service provider automatically generates payment tokens from the PAN, in real-time. These tokens can then be used online in predefined domains and payment environments, like for ecommerce transactions only or for a specific merchant, to make tokenized payments.

Tokenized payments are payments in which a token substitutes the PAN. Since the PAN isn’t transmitted during the transaction, there's very little possibility that the token can be used for fraudulent activity, even if a data breach occurs and payment tokens are accessed. This is the key strength of tokenization as a security measure.

Adyen’s tokenization service securely stores the customer's card data and generates a token that merchants can use instead to charge subsequent purchases.

As an acquirer, Adyen can also accept tokens generated by other token service providers, like major card schemes and digital wallets. A good example is Apple Pay, which uses payment tokens for both online and contactless, in-store transactions, and which Adyen can process.

Tokenization is suitable for any business that relies on a subscription-based model or on repeat customers. 

Tokenization is also of particular interest to businesses wanting to give as smooth customer flows as possible. Tokens can be securely stored and used for one-click and zero-click payments, making online payments effortless and secure.

There are a number of benefits to tokenization for merchants.

• Data protection and security

Security breaches are expensive for customers and businesses. Tokenization significantly improves payment security by replacing sensitive data with randomly generated tokens. This protects both merchants and customers from data breaches and theft.

• PCI DSS compliance

By minimizing the storage and processing of sensitive payment data, tokenization helps businesses adhere to industry standards like the Payment Card Industry Data Security Standard (PCI DSS). PCI compliance is essential for maintaining customer trust and avoiding penalties. This is also a huge driver in reducing costs. 

• Reduction in fraud and chargebacks

If fraudsters manage to steal tokenized data, they can’t use it to make payments. They can’t link the tokens back to the payment information that the payment provider securely stores. With improved security measures, businesses will likely see a reduction in chargebacks and disputes, leading to more stable and predictable cash flows.

• Enabling one-click and zero-click payments

Tokenization enables merchants to securely save payment data through tokens so that customers can make future purchases without re-entering their details. One- and zero-click payments significantly increase conversion at checkout by streamlining the payment process for customers.

A more advanced version of tokenization is network tokenization. 

In payment tokenization, the payment service provider, like Adyen, stores the customer’s card details, like the PAN, and generates tokens that merchants can use for payment transactions. 

In network tokenization, the card networks like Mastercard, Visa, and American Express, are the ones to store the PAN and generate the tokens. Because the schemes maintain the end-to-end tokenization process, network tokens are always up-to-date even if the card details expire.