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Tokenization: Preventing Online Fraud

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Never heard of tokenization? You’re not alone. In a nutshell, it’s the process of protecting debit or credit card payment information by replacing it with an algorithmically-generated number — called a token. The token is then used to send the transaction to the card’s payment network, where it is decrypted and then authorized. The actual credit card number is stored in a secure vault (with the payment processor or bank) and doesn’t reside on a merchant’s system.

The idea behind tokenization is to reduce online and digital credit card fraud — as a secure, cost-effective way to protect data:

  •  It is not mathematically reversible, rendering it ineffective unless you have the original key used to create the token (a fraudster cannot penetrate).   

Now that we’ve gotten the technical definition out of the way, let’s move on to why you should care (it protects your online data from fraud) and how it works. Most major payment platforms including Apple Pay, Google Pay and Samsung Pay are using tokenization.

How does it work?  

When you use a payment system like Apple Pay, for example, you upload your credit card information. This information is sent to your credit card’s issuing bank, who then replaces your credit card details with a series of randomly generated numbers (i.e. a token). The token is sent back to Apple Pay, who saves it on their end. This means the data stored with Apple Pay is no longer available to hackers — it’s just a bunch of meaningless numbers.

It’s similar for mobile apps. If your payment information is contained in a token, none of the apps contain actual credit card details. A new token can be generated for each online retailer — so you have a different code at each place you shop. If an online retailer has a security breach, all tokens issued to that website can be disabled without you needing a replacement card — and without having to worry about your data.

Setting up Apple Pay, Samsung Pay and Google Pay: 

 

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