Tokenization is the process of protecting sensitive data by replacing it with an algorithmically generated number. Tokenization in card payments is the process where a cardholder’s primary account number (PAN) is converted into a series of randomly generated numbers/characters representing a card number — this is the token.

As Card-on-File and Card-Not-Present payments have increased, tokenization has been an important part of making accepting cards online more secure and less risky for all parties. Tokens allow merchants, acquirers, and payment service providers to comply with PCI standards and minimize the risk that comes with the storage of sensitive card details – tokens are used everywhere instead of the card number. This can make the storage of data safer, but actually processing transactions and taking payments has traditionally required that the token is converted back into a PAN for processing.

Recognizing the weakness in this final step, EMVCo and the major card networks have decided to augment their networks’ capabilities and build tokenization directly into the network. This is “Network Tokenization – EMVCo has defined a standard where you can obtain a token for a PAN, receive updates regarding the cardholder’s PAN and then use the Network Token for transaction processing. This means that the eco-system around the card networks can now tokenize cards directly with Visa, MasterCard, Amex, JCB, UnionPay, and both store this data and processing transactions with this data without the need for ever using or seeing the original PAN. It also means that if anything happens to a customer’s PAN, the Network Token can continue to transact.

What does this mean for the industry? Better customer relationships, revenue saved, and lower fraud. For the first time, there is actually a systematic way to reduce the risk of the card, not present transaction because the issuer, merchant, and the networks themselves are no longer exposing sensitive data to be stolen or misused. This means not only are you safer, but you will also achieve better performance at a lower cost.