A "Token" of Appreciation

Once upon a time, the most common place to encounter "tokens" was at an arcade. If you grew up in the 1970s, '80s or '90s, you probably have fond memories of going to your local arcade to spend hours playing pinball and video games.  

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A "Token" of Appreciation

Sep 10, 2018

A "Token" of Appreciation

Once upon a time, the most common place to encounter "tokens" was at an arcade. If you grew up in the 1970s, '80s or '90s, you probably have fond memories of going to your local arcade to spend hours playing pinball and video games. At some arcades the machines took quarters, but most required you to exchange your money for "No Cash Value" coins—or tokens. Outside the arcade the greenish-gold tokens were useless, but inside, they were indispensable.

What are Payment Tokens?

Fast forward to the twenty-first century and the phrase "payment token" has taken on an entirely new meaning. At the same time, tokenization has emerged as one of the most important developments in payments, in part because tokenization can make it cheaper and easier to become and remain PCI compliant, while also reducing exposure to PCI liability issues.

The first thing to know is that unlike the arcade tokens of days gone by, payment tokens don't physically exist. When a payment services provider utilizes tokenization, your credit card number, account number or banking information is replaced by a series of randomly-generated numbers ("i.e. the token").

Essentially, that token "stands in" for your account information and allows a payment to be processed without exposing any financial information that could potentially be compromised. Today, payment tokens are a more secure way of handling payments and an increasingly important tool when it comes to preventing fraud. The tokens are basically worthless and useless to cyber criminals.

Meanwhile, payment tokens offer more than just improved security; they can also facilitate an improved customer experience. For instance, tokens are commonly utilized with near-field communication (NFC) mobile wallets, so when you use Apple Pay®, for example, a token is exchanged between your smartphone and the merchant's NFC-enabled terminal. There's no need for you to take out a payment card—much less take out a card that leaves your hands—thereby enhancing security and transaction efficiency.

If you're on the merchant side of this equation, you benefit too, because you aren't storing the customer’s account information.

Outsourcing Tokenization

Of course, if you're a merchant, you may be wondering whether tokenization is something you want to insource or outsource. It's probably safe to say that most merchants outsource tokenization, thereby eliminating the need to keep sensitive customer data within their own environment.

Keep in mind that the role of a so-called token service provider is to operate and maintain a token vault (where the tokens and the account numbers or data they represent are stored). It's a job that is arguably best suited for payment card issuers, payment processors and the card networks, all of whom can serve as token service providers.

Regardless of which route you choose, know that credit card and account number tokenization are likely to be an increasingly important tool in combatting payment fraud going forward, especially as more and more commerce becomes e-commerce, and more consumers are shopping online, in-app or using their mobile devices to pay in-store at NFC-enabled terminals.

For further information about tokenization, reference Visa®'s All You Need to Know about Tokenization infographic.


Apple Pay® is a registered trademark of Apple, Inc.

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