Card-on-File Tokenization

Financial institutions are cautious because of fraudsters and criminals looking for opportunities to steal people’s funds. These institutions continue to provide solutions to minimize security risks resulting from payment data. Even though the PCI DSS compliance scope ensures adequate security on customers’ card data, it is still important that other measures are considered.

Tokens can protect a cardholder’s data and are considered one of the best security systems financial institutions use today. Recently the Reserve Bank of India (RBI) gave a deadline of January 1, 2022, for companies handling payments to comply with the Card-on-File tokenization. Tokens offer more advanced security, and like all payment security measures, business owners must understand how it works. We will be explaining what Card-on-File tokenization is and if it is the right option for you.

Understanding Card-on-File Tokenization

The purpose of Card-on-File tokenization is to protect cardholders who make online transactions from cyber-attacks, fraud, and other criminal activities. This security measure prevents any company other than the card issuers or card networks from storing customers’ card data. The only record they can store, for the sake of tracking the transactions, is the last four digits of the customer’s card and the card issuer.

What Is Tokenization?

Tokenization is a method used to protect debit or credit cards. It is a process of substituting the original card numbers with tokens. Card-on-File tokenization uses tokens to protect customers from online fraud. The card network and the token requestor manage these tokens. When tokenization security is in place, customers can have their card details protected from third parties.

The token generated and the customer’s card data are usually stored on a secure vault operated by the card networks. Financial institutions are required to only use and store tokens instead of the actual card details. The process of using and storing these tokens is what is termed tokenization.

How Does Tokenization Work?

When individuals make a transaction online, they are requested to enter the sixteen-digit number on their credit or debit card, the CVV, and their four-digit PIN code. After submitting this information, the page will be redirected to fill in an OTP confirmation code. Sometimes the card details are stored, while you will need to enter your card details manually in most cases. Keeping your card details online is not always advisable, even though the transaction is secure. It will be at risk of cyberattacks, which is why the token is in place. The OTP confirmation code is a unique code that is randomly generated. It can’t be reused, so there is no risk of theft.

So, even if the card data gets into cybercriminals’ hands, the tokens make the information they have useless. The same also applies to Card-on-File transactions, which are also tokenized. The token created is unique to each card detail entered online. The cardholder can place an order on the online store and enter a token to confirm the transaction. The card network issues the token, and instead of entering card details, the merchant’s store will only request the token.

What Does Tokenization Mean for Digital Payments?

With card-on-File tokenization, businesses will require customers to enter their card details every time they purchase on the online store. It is a good thing for business owners, however, because it will help improve their business in the following ways:

• Prevent Cart Abandonment

There were many cases where customers would leave items on the cart online and won’t proceed to checkout. This affected businesses’ revenue and tokenization will help curb this problem.

• No More Personalized Offers

The introduction of Card-on-File tokenization will help businesses, especially in personalized offers. Formerly, merchants had to make special offers and promotions based on the customer’s preferences and purchase history.

• Gain New Customers

Many customers are open to the idea of tokenization because it offers a more secure platform for them to shop online. If a business isn’t offering tokenization, customers will come to your online store because it promises a better experience.

Which Is Better?

It is safe to say that Card-on-File tokenization is beneficial for both customers and merchants. When customers have their card details saved on online stores, they are exposed to online fraud and cyber threats. It may be inconvenient for the cardholder who always has to enter those long sixteen digits every time, but it promises good security. Tokenization provides good payment security, and companies have many solutions to choose from. They will need to consider PCI scope, data transparency, technology, debit routing protocols, and lifecycle management. If you are considering any of these solutions, Paykassma will guide you on which options will meet your business needs.