A big concern among the older generation was, “Are my online payments truly safe?” Their concern was justified back then, for the most part, considering that online transactions were the driving factor behind a lot of online scams. As in, since these payments were not very secure back then, hacking and scamming became relatively simpler.
However, things have changed now. We have payment tokenisation, which is an important component that prevents payment fraud and creates an exceptional customer experience. In this article, we’ll explain the relevance and the benefits of tokenisation that help business models manage multi-vendor payments safely.
What Does a Token Refer To?
A token is a random string of letters and numbers that stands in for private data. Tokens can be used instead of credit card numbers or main account numbers (PANs) in payments so that the real numbers aren’t seen.
What is Payment Tokenisation?
Payment tokenisation is a way to protect sensitive payment information, like credit card numbers, by replacing it with a token, which is a unique, random set of characters. The real card data is not used or kept throughout this process, which helps keep payment information safe during transactions.
If someone got their hands on the token, they wouldn’t be able to use it to make fake transactions because it doesn’t have the real payment information. Businesses can give their consumers a safe and easy way to pay by utilising tokens instead of card information. This lowers the danger of data breaches and fraud.
How Does Payment Tokenisation Work?
Now that you understand what payment tokenisation is and what a token is, you must be wondering, well, how does it work? Here’s how:
| Step | Stage | Description |
| 1 | Data Collection | The customer provides payment details such as credit card information during a transaction. |
| 2 | Tokenisation Request | The payment data is sent to a secure token service or automatically tokenised through payment systems. |
| 3 | Token Generation | A unique, random token is created using algorithms and encryption to represent the original payment data. |
| 4 | Token Storage | The generated token is stored in the business system, while the original data is securely kept in a protected vault. |
| 5 | Token Usage | The token is sent to the payment processor, which maps it back to the original data to complete the transaction securely. |
| 6 | Token Reusability | The same token can be reused for recurring payments without collecting sensitive data again. |
Payment Tokenisation for Marketplaces
Wondering how relevant payment organization is for marketplaces? It is a critical security technology for multi-vendor marketplaces as it replaces sensitive customer payment information like primary account numbers with a unique non-sensitive identifier, like the token, by storing only these tokens in the databases, marketplaces can securely manage payments, split funds between multiple sellers, and achieve payment card industry data security standard, which is also called PCI DSS compliance without directly handling raw card data.
There are more than one kind of token used in marketplaces, like network tokens, which are issued by card networks, and these are highly secure and update automatically if a user’s card expired or replaced, there is also another thing called PSP tokens, which are generated by payment service providers and are often used for managing, splitting and routing payments to various vendors, type of token is device token, which is specific to mobile wallets like Apple Pay or Google Pay, these provide an extra layer of security for mobile first marketplaces.
Benefits for Multi-Vendor Marketplaces
Well, it is clear that multi-vendor marketplaces can benefit a lot from payment tokenisation, but how does it actually work?
| Benefit | Description |
| Enhanced Trust & Security | Tokens are useless to hackers if intercepted, helping protect customer data and the marketplace’s reputation. |
| Increased Conversion Rates | Secure one-click checkout reduces cart abandonment and improves the customer experience. |
| Higher Approval Rates | Network tokens often receive higher approval rates from banks compared to raw PAN data. |
| Operational Efficiency | Automatic updates for expired cards reduce failed payments and minimise manual support efforts. |
| Simplified Payouts | Tokens enable secure handling of complex, multi-party transactions and seller payouts. |
Implementing Tokenization
So, how do you actually implement tokenisation? Here are a few ways you can actually implement it:
- Partner with Reputable Providers: By choosing payment processors that support advanced multi-use network tokenisation, you can ensure a secure and scalable solution.
- Use API-Based Integration: if you need to handle complex, high-volume and/or global marketplaces, you can use APIs that can manage tokens across different regions and payment methods quite effectively.
- Maintain Token Portability: You can also opt for token solutions that allow for portability if you need to maybe switch or add new payment service providers.
- Implement “Account Updater” Services: you can also use services that automatically update card details to make sure that there are no declines and things run smoothly.
What formats can Tokens take?
Did you know that tokens can take more than one type of format? Well, here are the formats they can actually take.
| Token Type | Description | Example |
| Non-format Preserving | The token does not follow the same format or length as the original sensitive data. | SSN “123456789” → “T@%3N5” |
| Format Preserving | The token keeps the same format and length as the original data, but the values are randomly changed. | Card “1234 5678 9012 3456” → “9687 4595 3211 7312” |
| Partial Replacement | The token keeps the same format but leaves some parts unchanged (selective masking). | Card “1234 5678 9012 3456” → “1234 5698 3211 3456” or “1234 XYZ# ABC& 3456” |
Conclusion
Payment tokenisation is a blessing for marketplaces, especially ones that handle multi-vendor payments, as it is a foolproof method against any form of payment fraud, and it increases the trust customers have in your business overall. Payment tokenisation has had a positive impact on marketplaces that manage multi-vendor payments.
