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How tokenization secures digital payments

LiveMint logoLiveMint 13-07-2017 Komal Gupta

New Delhi: With increase in the number of cashless payments, customers’ financial information is increasingly at risk.

In this scenario, tokenization is emerging as an important technology to secure mobile payments, according to industry experts.

What is tokenization?

Tokenization is the process of replacing sensitive data with unique identification symbols that retain all the essential information without compromising on security.

In the payments space, tokenization is the process of replacing the 16-digit payment card account number with a unique digital token in mobile and online transactions.

Where is it used?

In the payment card industry, it can be used for mobile payments. For example, payments using mobile wallets.

Tokenization could also be enabled to work with different technologies, and has been extensively used in contactless payment applications such as magnetic technology in the case of Samsung Pay, NFC (near-field communication) in the case of Apple Pay and Android Pay, and sound-based technology of ToneTag.

Samsung Pay and Apple Pay are mobile payment services offered by Samsung and Apple, respectively. While Samsung Pay was launched in March, Apple Pay is still not available in India.

How does it work?

“If a cardholder decides to add their personal account number to a mobile device or digital wallet, Visa will issue a token behind the scenes. Then when the Visa account holder initiates transactions with mobile devices using their digital account number, the token, and not the primary account number, will be used to process the transaction, just like a traditional card payment. This process is invisible to accountholders and merchants,” said Visa, in response to an emailed query from Mint.

Visa, MasterCard and American Express offer this technology in India.

Why is it important?

Tokenization is a new layer of security for digital payments without adding friction to the shopping experience. It does not require merchants to make major changes to their current payment acceptance systems. The biggest benefit to all involved is that payment card numbers are no longer used or saved where unauthorized access can occur.

For customers, this means added security and convenience. It eliminates the need to enter and re-enter the account number when shopping on a smartphone, tablet or computer.

It is safer than magnetic strips because tokens don’t carry the consumer’s primary account number, there is less risk in storing tokens on mobile devices online by e-commerce merchants, and in cloud-based mobile platforms and applications. Even if it is hacked, there wouldn’t be anything of use as it devalues the entire data.

“While speed and ease of use are the major advantages of mobile payments over cash, payment security plays an equally crucial role in ensuing that the consumers feel confident when they reach for their mobile phones to pay. This is where our Visa Token Service adds tremendous value to the mobile payments experience by protecting consumers’ payment data during transactions,” said T.R. Ramachandran, group country manager, India and South Asia, Visa, in an emailed statement.

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