Tokenization of payments through blockchain

//Tokenization of payments through blockchain

Why tokenize payments?

Blockchain has been a huge revolution, since it eliminates intermediaries in transactions and decentralizes management.

This chain is composed of blocks (tokens) linked together and encrypted, making the security of the data they hold much greater. Thanks to this, it is the user who controls the process and not third parties such as banks or other intermediaries.

To understand it in a simple way: when a consumer wants to make a transaction with his card and uses a tokenized payment system, the system encrypts the information on the card, confirms it and sends it to the seller. This information is encrypted thanks to the chain of blocks system that is continuously storing information and encrypting it again and again to avoid intrusions.

Thus, “tokenization” is synonymous today with ease, confidence and security, since it is one of the best data protection strategies that can be integrated into different payment ecosystems. The benefits it brings to sellers and consumers have enabled it to spread so quickly.

In the midst of an increasingly varied landscape of online payment methods, the greatest advantage offered by tokenization to customers is the fast and simple link of your payment card with the digital payment services that you use periodically, administrating and Protecting your personal data when paying in physical stores or in electronic stores. Meanwhile, for sellers, the main benefit lies in providing their customers with a considerably better payment experience by increasing confidence and security indexes.

An important element of the “token” concept is that, outside of the specific financial relationship for which they were created, they are totally worthless. And it is precisely that characteristic of the tokens, represent (substitute) a specific value in a certain relationship, the basis of the tokenization process in the payments. A process that reduces the number of systems that have access to cardholder information, thus increasing the security of data protection.

 

With tokenization the primary account number (PAN) is protected under an algorithmic encryption system that emits a unique numeric code formed by similar digits (the token) that replaces the PAN during the transaction. If a customer makes a purchase through a tokenized payment service, the information that is sent to the payment card network is a token instead of the account data of the account holder. This is a very safe way that, in the data flows generated in a transaction, no information from the owner is duplicated. Tokenization is therefore intended to ensure the privacy of the customer, which is only exposed to the service provider and the bank, and not to the seller.

The operation of tokenization is simple and over distances we can summarize it in three phases:

  1. Provisioning: the client is provided (or already possesses) a token linked to its PAN;
  2. Validation: in a payment process the token is sent to the credit card network to process the transaction. This network “detokenizes” the token, obtains the PAN that it sends to the bank of the owner of the card and receives a validation from that financial institution;
  3. Authorization: once the validation of the transaction has been received, the network “retooks” the PAN and sends the authorization to the seller.

All this process is done in a matter of seconds and is fully compatible with existing payment environments.

Advantages of payment tokenization.

For e-commerce that accept card payments, tokenization allows them to store card data of their customers and reduce, for example, the requirements to comply with the PCI DSS.

Another of the main advantages that tokenization brings to payments is the improvement of the payment infrastructure itself. A customer who has previously linked their data to a token can pay faster anywhere and in this way greatly increase the transaction volumes that a business can process.

 

The fact that multiple tokens can be created for the same card makes it possible to control and flexibly manage the specific channels in which a token can be used. If a token is only configured for a payment service in a specific mobile application (or a specific website), it can not be used in another digital environment if it is stolen. This advantage limits the filtering of data before the possibility of an external third party accessing the token. Even if an external third party accesses the token, since the encrypted information that the token possesses only has value in a certain relation, it is useless information for that external person. If this unwanted access occurs, simply replace the token by quickly deactivating the previous one. In no case is it necessary for the customer to have to replace the credit card.

Advantage:

  • Eliminates the duplication of customer data information in each of the payment environments.
  • The tokens are not reversible so it becomes useless information for a third party to access them.
  • Comfort and immediacy in transactions.
  • By storing tokens and not the sensitive information of the cards, sellers are in a better position to raise their data protection standards.
  • Because it limits the number of systems that access payment card information, it reduces the scope of PCI DSS compliance and makes it easier to obtain certification with fewer requirements.
  • It is not necessary to implement controls associated with confidential data, because the token is not considered a confidential data.
  • It facilitates the presence of more electronic stores with better security standards, all operating with some of the existing tokenization platforms.

In short, tokenization manages to increase security in purchases. This is something that still scares many consumers who have qualms when giving their bank details at the end of a purchase. Therefore, this system increases security for both the consumer and the stores.

 

 

29 April, 2019
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