Credit Card Tokenization - Meaning, Benefits, How Does it Work in Banking?
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If a business relies heavily on recurring payments, it’s their responsibility to handle customers’ sensitive data safely and securely. Securing payment information is crucial to protect the data, preventing any instance of identity or financial theft. While several data protection methods are available for implementation, credit card tokenisation is the most effective of all.

Before understanding tokenisation meaning, first understand what it means to tokenise something. A token is an item representing something else. Tokens have no value, but the user can exchange them for various goods and services. Payment tokenisation protects a customer’s sensitive data when purchasing something at an online platform.

Therefore, now you know what is card tokenisation. It is the process of replacing actual credit card details with a code called token. Customers can use a transaction token to make payments without exposing sensitive information. Rather than transferring sensitive data through an open network, a transaction token replaces the cardholder’s data and card information with a random string of numbers. It ensures that sensitive data never gets exposed during the payment procedure, protecting it against a data breach.

How Credit Card Tokenisation Works?

Now that you understand the tokenised transaction meaning, let’s see how to tokenise credit card and how the process works. These are the steps involved:

Data Collection: When customers initiate a payment, they enter their credit card details into the system. A tokenisation system or application collects this information, including bank account details, credit card numbers, etc.

Token Generation: Once collected, the payment processor encrypts this data and replaces it with a unique code with no intrinsic value. Even if a fraudster gets access to this code, they cannot use it to steal money or information.

Storage and Usage: The system’s database stores the tokenised information that the token replaced and transmits it through the payment network. Since a transaction token is meaningless, anyone who gains access to it will find it useless. Any transaction between entities only uses tokens while keeping the actual data safely stored in the database. It is only detokenised when the token reaches its final destination and it's time to make the confirmed payment.

The customer does not need to do anything since the entire credit card tokenisation process occurs behind the scenes.

Benefits of Credit Card Tokenisation

Enhanced Security: After understanding tokenisation in banking, it's obvious that tokenisation is an efficient way to boost payment security and protect customers’ payment information from potential hackers and fraudsters.

Compliance with Payment Standards (PCI DSS): Businesses collecting and storing sensitive data on their networks may find it challenging to comply with PCI DSS standards. In case of a data breach, non-compliance with the PCI results in PCI Council fines. Payment tokenisation allows business owners to stay compliant with the PCI DSS with minimal security expenses and liabilities.

Reduced Risk of Data Breaches: Those who know the tokenisation payment meaning understand that anonymous hackers and thieves have fewer opportunities to access a transaction token passing through the system and commit a cybercrime.

Streamlined Payment Processes: Tokenisation is a safe and handy method for online transactions. It gives returning customers the facility of secure checkouts without entering their payment details time and again.

Tokenisation for online payments

As per the guidelines issued by Reserve Bank of India (RBI) (Circular CO.DPSS.POLC.No.S-1211/02-14-003/2021-22) on card data storage by online merchants, payment aggregators & ecommerce websites; the Credit, Debit & Prepaid Card details will no longer be stored on the merchant app/websites. In order to enhance the customer experience and facilitating the use of digital payment products in a more safe and secure manner, ‘Card tokenisation’ has been introduced.

Card tokenisation is a method wherein the sensitive customer data like card number, CVV, etc. is replaced with an algorithmically encrypted token generated by the card issuer or the payment network (Visa/ MasterCard/ Rupay). These tokens pass through the payment systems without disclosing the customer details or allowing the merchants, payment aggregators, etc. to store any kind of sensitive customer data.

So, secure your Kotak Credit, Debit & Prepaid Card, using the below mentioned easy steps:

  • Visit your online merchant's website/ app
  • Choose the product you want to buy
  • Select Kotak Bank Credit/ Debit/ Prepaid Card at checkout or enter your Kotak Bank Card details
  • Select ‘securely save your card’
  • After successful authentication, your card is now secure and you can pay conveniently without entering your card details every time.

Frequently Asked Questions

What is tokenisation for credit cards?

Want to know what is tokenisation for credit cards? Well, it is the process of converting credit card details into a random unique number with no value for fraudsters if they access it.

Is credit card tokenisation mandatory in India?

From 1 October 2022, the RBI has directed all payment wallets, online merchants, and aggregators to tokenise sensitive customer card-related information instead of storing it in their database.

Is it safe to Tokenise credit cards?

Tokenisation is one of the safest ways of securing a credit card and sensitive information related to the cardholder. After converting credit card details into unique codes, fraudsters cannot access and use them for malicious purposes.

How do I Tokenise my credit card data?

The customer does not need to do anything to tokenise their credit card data.

Once they enter their credit card details when paying an online merchant, the payment processor will automatically tokenise the details to safeguard them before transferring.

What Is Tokenisation Payment?

Tokenisation payment means securing payment by converting the credit card details into unique codes useless to fraudsters trying to steal identity or money during the transaction.

How do I use tokenisation for payment?

There are no steps involved in using tokenisation for a payment. The payment processor automatically tokenises the data to protect it against theft or fraud.

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