What is Tokenization, and how do they secure your credit and debit card details?

2 mins read
What is Tokenization, and how do they secure your credit and debit card details?
Image Source | Wikipedia

From January 2022, all your online payments that you make through credit card or debit cards will now be very secure thanks to the Reserve Bank of India by allowing the Tokenization of cards while making online payments.

There are lots of E-Commerce websites available including Amazon, Flipkart, and so on, that allowing you to save your credit and debit card details on their websites which helps customers to make their all online transactions much quicker rather than adding manually card details on their site.

But saving your card details on merchant sites is very risky and they can even steal your card data. And that’s where Tokenization comes in, which helps you secure all your online transactions, so your card details won’t be saved much on the merchant site, so there’s no more fear of data theft.

What is Tokenization?

Tokenization is the encrypted process that replacing your card’s details with random numbers of code referred as to as a “Token.” For a combination of cards, the token requester (the entity that receives a customer’s request for tokenization of a card and passes it on to the card network to issue a token), and device, this token is unique. This can also be used to make payments at POS (point of sale) terminals and using QR codes.

Because the RBI has expanded tokenization of Card-On-File (CoF) transactions, where card details were formerly retained by merchants, all merchant sites must no longer store customers’ card details on their websites or in their systems starting January 1st, 2022.

“No entity in the card transaction/payment chain, other than card issuers and/or card networks, shall store the real card data beginning January 1, 2022. The RBI stated in a press release that “any such data already stored shall be purged.”

How to get your Tokenize cards

Cardholders can get their cards Tokenized by submitting a request through the token requestor’s app. The token requestor will then send the request to the card network with the card issuer’s permission, and the card network will issue a token that corresponds to the card, the token requestor, and the device.

What is Tokenization, and how do they secure your credit and debit card details?
Image by M2P Fintech via Medium

Tokenization can be used for all types of transactions, including contactless card transactions, QR code payments, and app payments, using mobile phones or tablets.

Visa and MasterCard companies will act as Token Service Providers (TSPs) and will provide the tokens to mobile payments on E-Commerce platforms so that they can be used for payment for purchases instead of card numbers and CVV codes which is generally written on the backside.

When you submit your card information into digital wallets like Google Pay, Paytm, or any other wallet platform, the TSPs will ask for a token, and the TSPs will then request data verification from the customer’s card issuing bank. Once the data has been confirmed, a unique encrypted code will be generated, which will be permanently connected to the customer’s device and will not be replaced.

As a result, each time a customer uses a device to complete a transaction, the platform will be able to authorize it by merely providing the token rather than revealing the customer’s actual data. Tokens can be created to protect payments in mobile wallets as well as physical and online shops like Amazon and Flipkart.

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