Tokenization: The Secret Key to Payment Security

Posted on February 7, 2020

The rise of digital shopping triggered a world of innovations that boost security and consumer experience. Tokenization is among them. Of the 2.1 billion digital buyers worldwide, most of them may never know what tokenization means—or what it means for the future of their personal data security. 

The not-so-secret world of tokenization

Apple Pay, for example, became the market leader over Starbucks in 2019 with 30.3 million users or 47.3% of mobile payment users in the U.S. What those consumers probably don’t know is that Apple Pay uses tokenization. Apple customers take a photo of their credit card and load it into their iPhone. From this, Apple creates a random, algorithmically generated number—a token—that represents the credit card information. 

Likewise, in late January 2020, Visa released the Visa Token Service (VTS) that is estimated to process a combined e-commerce volume of $1 trillion. According to Visa’s Chief Product Officer, Jack Forestell, “as digital transaction volume grows, there has never been more urgency to build increased confidence in the seamlessness and security of online shopping. This is why Visa is committed to the success of the click-to-pay experience and the added level of security that tokens bring to electronic payments.”

Extra security measures for consumers and retailers alike are essential as more consumers spend online. Over the 2019 Christmas shopping season, for example, consumers spent $125.6 billion online. More than a third of that spending took place on their smartphones. Currently, 69% of U.S. consumers store a card-on-file or set up recurring billing with trusted retailers. 

However, storing sensitive banking and personal information is a security risk and liability for merchants, e-commerce sites, and retailers. That’s where tokenization comes in.

What is tokenization?

Tokenization adds a layer of security to consumers’ sensitive information, such as bank account and credit card details. It protects sensitive data by replacing it with a unique and randomly generated number. This number is called a token. Tokens help organizations and retailers securely store and transfer information. 

Not only do tokens replace sensitive numbers and data with an algorithmic number, but they also retain essential information. Think of them as a unique code to a lockbox full of information. The bank account and accompanying personal data are stored in a secure token vault. 

Rather than using credit card information to make digital payments or purchases, tokens are used. These tokens can be stored in and passed through e-commerce sites and wireless networks without ever sharing actual bank account or personal details. In fact, most retailers and e-commerce sites will never see or have access to a consumer’s actual bank information, even if the token is specific to that retailer.

Instead, they work with secure third-party technology companies that connect a token purchase back to the original bank account information—and arm themselves with enhanced security features. This brings us to our next point.

VoPay on tokenization: The future of payments

Payment experts are seeing an uptick in tokenization as more organizations move away from encryption. This is because tokenization is a more cost-effective, secure, and user-friendly way to protect sensitive consumer data. 

VoPay’s Intelligent EFT / ACH (iQ11) payment service, for example, accepts tokens from numerous leading data aggregator companies including Plaid and Flinks. These secure API partners create and store their own secure tokens. This means that a user can skip all of the authorization access and bank account selection steps while they’re shopping online. This streamlines the payment check-out experience even further than ever before. Once a user has granted access and their data is tokenized, there’s no need to ever do it again. 

With VoPay's next-generation bank payment service, only tokens are ever shared between consumers and retailers—not sensitive bank account or credit card information. By streamlining this experience, security, and integration, we’ve been able to create one unified token that can unlock an entire digital ecosystem.  

Learn more about VoPay today.

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