What is tokenization?
Tokenization refers to replacement of actual card details with an alternate code called the “token”, which shall be unique for a combination of card, token requestor and device (referred hereafter as “identified device”).
Token requestor is the entity which accepts request from the customer for tokenization of a card and passes it on to the card network to issue a corresponding token.
The process of tokenization
A customer decides to make a purchase, initiate a transaction and enter their credit card information.
Step 1: - The token requestor, which can be an online store or an issuer application, sends a cardholder’s PAN to the separate token service provider (TSP).
Step 2: - The issuer performs identification and verification (ID&V) and submits these results to the TSP. This process is called “binding” and it completes the token registration.
Step 3: - The token vault transfers the registered payment token to the requestor and thereby completes the token request process i.e. Issuance.
Step 4: - The acquirer transfers the token to the credit card network for further authorization. The customer’s primary account number and token are sent to the issuer who makes an authorization decision.
Step 5: - After authorization, the customer’s data is stored in the bank’s secure virtual vaults, and the token is matched with the customer’s account number.
Step 6.: - The bank checks the availability of funds and approves or rejects the transaction.
Types of Tokenization
Device Side Tokenization: - Device side tokenization binds tokens to a device and thus the tokens generated can only be used for repeat transactions on that particular device. It is used primarily app-based payment options.
Card on File Tokenization (CoFT): - CoFT involves generating tokens that are not unique to any device they are only mapped to the merchant. CoFT can be implemented by integrating APIs provided by either the Networks, Issuers, or Token requestors.
Movement in the payment ecosystem
PhonePe has launched PhonePe SafeCard, a tokenisation solution for online debit and credit card transactions
Global payments firm Visa, in partnership with Juspay launched Card-on-File (CoF) tokenization services in India
PayU, announced the launch of its unique tokenisation solution ‘PayU Token Hub’
Razorpay had also announced the launch of ‘Razorpay TokenHQ’ a multi-network Card-on-File (CoF) Tokenisation solution