To a greater or lesser extent, fraud concerns almost everyone involved in e-business. How great would it be, then, if your small businesses could utilize an anti-fraud tool that’s not only highly effective, but also lower in cost than other methods and more convenient for your customers?
Tokenized payments are the payments security tool that scores a rare trifecta: highly secure, cost-effective, and very convenient for shoppers. Read on to find out if tokenized payments are the right choice for your business.
Tokenized payments: The next step?
For small businesses accepting payments in store, online, or in a mobile, out-and-about setting, there’s a clear need for effective anti-fraud tools. Nearly 80% of consumers have concerns about fraud when paying for goods or services online, and 65% of businesses are worried about cyber security, according to research conducted by Sage and reported in the 2017 Payments Landscape Report.
Tokenization is an increasingly popular way to prevent credit card fraud that arises from in-store, online, and mobile. Although tokenization was introduced to payments processing around 2005, the practice has been around for years as a means of protecting sensitive data. The advantage of tokenization over encryption is that tokens cannot be decrypted with a key, and the credit card information is never displayed.
In the world of payment processing, tokenization lets shoppers—your customers—store their credit card information in mobile wallets and online stores without exposing their personal account numbers. Here’s how it works:
- Cardholder data is collected by the e-payment provider.
- Once a card transaction is entered into that e-payment provider’s system, a random string of numbers and letters (the token) is generated to correspond to each card and passed back to the merchant.
- This token can then be used as the merchant wishes, without the security concerns of card data getting into the wrong hands—even if it can be accessed, the token would be indecipherable.
- For users of Apple Pay, meanwhile, iPhone and Apple Watch users store credit card information on their device and transmit the information through a secure wireless connection to the terminal. The single-pay token system prevents the data from being used if it's stolen, and the technology works with most modern point-of-sale equipment.
Where and how can you use tokenization
Tokenized payment technology can facilitate a range of payment methods:
- Delayed or deferred payments: to allow a merchant to take payment on delivery, but to collect and store the card details securely when the initial order is processed.
- Repeat orders: for businesses offering subscription based models.
- Single-click payments: as the payment processor already stores the customer’s details securely, the merchant just needs the customer to enter their card security code (also known as CV2 or CVV) to validate the payment. This keeps payments more secure while improving the customer’s overall experience.
Tokenization is used extensively when shoppers put their “card on file” with a business from which they frequently buy. Tokens are also prevalent on ecommerce sites that let frequent shoppers use “one-click” checkout. In most such cases, businesses tout the convenience of shopping in that way, but rarely do they promote the enhanced security that comes with it. It’s a great opportunity that businesses like yours can take advantage of: As you’re building or enhancing your online-payment capabilities, be sure your shoppers know that, through tokenization, you’re making their shopping experience more convenient and more secure.