How does card tokenization work?

How does card tokenization work?

The process involves several steps to ensure security and usability:

Data Collection: At stage 1, a customer fills in the details of their payment card, and the merchant collects this sensitive data, including the 16-digit card number, cardholder name, expiration date, and security code (CVV/CVC).

Token Generation: The collected card data is then forwarded to a tokenization service provided by a trusted third party or managed by the merchant's payment gateway. This service generates a token that is unique to that specific card data.

Token Storage: The token is then stored in the merchant's system or database. At the same time, the original sensitive card data is immediately discarded or stored in a highly secure, compliant-friendly system.

Transmission: The token is returned to the merchant and can be used for future transactions. If unauthorized users gain access to the database, they cannot reverse-engineer the original card data from the token.

Transactions: The merchant uses the token instead of the card data for subsequent transactions. The token is sent through the payment process like the original card data.

Authorization: The payment processor or payment gateway receives the token and uses it to request authorization from the card issuer. When the card issuer recognizes the token, the payment processor processes the transaction as the actual card data.

Decryption and Payment: The payment network decrypts the token and uses the original card data to complete the transaction. The merchant receives payment approval without direct access to the real card details.