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Three Types Of Tokenization For Ecommerce, Explained

QUICK SUMMARY

The safety of online payments and the checkout process will be paramount to the ecommerce industry as a whole in the years to come. Let's look at how tokenization can make your ecommerce business more secure for yourself and your customers.

TABLE OF CONTENTS What is tokenization Tokens as poker chips or coat checks Three types of ecommerce tokenization Benefits of payment tokenization

The last few years have had a significant impact on the ecommerce industry. With countless technological innovations, and the global need to move online as much as possible, the ecommerce industry had to introduce some novelties to keep the businesses running smoothly.

Even though the internet gives us some extraordinary benefits, it has its dark side too. Namely, the online world is filled with scams, frauds, and other cybercriminal activities that can cause great harm.

Just to mention, Juniper analysts have found that the value of ecommerce frauds in 2020 was $17.5 billion and over $20 billion in 2021, which is a yearly growth of 18%.

This is why the safety of online payments and the checkout process will be paramount to the ecommerce industry as a whole in the years to come.

Also, Juniper Research’s “Online Payment Fraud: Emerging Threats, Segment Analysis & Market Forecasts 2021-2025” is saying that the online payment fraud space is evolving, in reaction to changing fraudster tactics.

That’s exactly why ecommerce businesses had to introduce measures to protect themselves and their customers.

Tokenization has proven to be one of the winning solutions, and we’re here to tell you everything about it.

Because it’s a relatively new concept, many people still don’t know what tokenization is, so first a quick definition.

What Is Tokenization?

Simply put, tokenization is a process that involves exchanging sensitive data for data that’s not sensitive at all. The nonsensitive data is commonly known as tokens, and they can be used across different databases and internal systems.

Each token represents a sensitive and valuable piece of information. The tokens by themselves have no value whatsoever–they only become valuable when exchanged for the original sensitive data, like a primary account number or Social Security number.

The role of data tokenization is to secure sensitive data and ensure uninterrupted business operations for companies, such as card-not-present transactions and other external transfers.

The valuable data is removed and replaced with tokens. Although tokenized data contains some original data elements, typically format or length, the tokens have undecipherable and irreversible data.

Tokens As Poker Chips Or Coat Checks

The analogies that can be used for tokenization are coat checks and poker chips. Using them, you're exchanging something real for something else with no value independent of the item it represents.

Specifically, with coat check, you're exchanging your coat for a tag that can be returned to receive your coat when you need it. Same thing with poker chips.

Because they are merely representations of monetary values, they're worthless outside of the context of a casino. So, even if the chips are stolen, the money they represent remains safe.

That’s what makes tokenization different from a similar process called data encryption.

While encryption includes some mathematical relationship between data and its encrypted format, finding relations between original data and its tokens is nearly impossible.

Therefore, even when breached, tokenized data doesn’t give any information about the original data, making it the ultimate process for securing sensitive data online.

Three Types Of Tokenization For Ecommerce

Now that you know more about tokenization, it’s safe to say this process holds numerous advantages for its users.

As credit card fraud and data breaches become more common, ecommerce businesses must protect the information about their employees and customers, as well as their identities.

As tokenization became increasingly popular with ecommerce businesses, several types of ecommerce tokenization emerged. Nevertheless, not all ecommerce tokenization types are equally effective, so we’ve decided to single out only the top ones you’ll find highly useful.

FYI: We used screenshots from the data security company TokenEx product in order to help illustrate the points.

1. Webform tokenization

One way of securing tokenization is by implementing webform tokenization via iFrame. Tokenizing via iFrame windows allows businesses to securely collect sensitive data from web forms before that data enters their web servers.

For most ecommerce businesses, webform tokenization via iFrame is part of their checkout page, where customers fill in the required fields with the necessary sensitive payment data.

Naturally, this is the riskiest step, so it’s crucial to ensure the maximum level of security.

When your site visitors enter their personal information, the iFrame works to collect the provided data and securely pass it to a provider to be tokenized.

Then, the tokenized value is generated, and all details are replaced with undecipherable and nonsensitive tokens. The tokens are so secure you can even store them across your company’s systems without increasing risk or PCI compliance scope.

The page with webform tokenization is typically incorporated into your web page through an HTML iFrame feature. It drastically reduces the risk of letting others gain access to valuable data and simultaneously minimizes PCI scope.

Here’s a brief overview of how you can incorporate webform tokenization by using iFrame:

Reference the JS library from your page and configure the iFrame to meet your needs
Load the iFrame(s) on page load using iframe.load()
TokenEx iFrame(s) tokenize the sensitive data and return the tokens to the parent page

2. Mobile application tokenization

Mobile devices have developed and are now nearly as powerful but more convenient and easy-to-use than computers and other tech solutions, so it’s no wonder that the entire world favors various mobile applications and solutions.

Online businesses are no exception since there’s an increase in mobile user visitors that doesn’t show any indication of slowing down anytime soon.

As a result, numerous mobile applications hit the market. Moreover, these apps often need their users to fill in sensitive data. Of course, the entered information is vulnerable and at risk without appropriate tokenization.

Tokenization is needed to ensure mobile payments and other high-risk activities are tokenized so that the cards can be used for transactions without exposing the original information that appears on the cards.

Ecommerce organizations can implement tokenization within their native mobile applications to collect sensitive data at the application level while still ensuring their customers the ultimate privacy and safety. Again, this helps reduce risk and PCI scope. For incorporating tokenization through Mobile API, here are the key steps of the process:

mobile application tokenization screenshot

User-submitted sensitive data is tokenized via the TokenEx Mobile API
Nonsensitive data and token(s) are sent to the client’s mobile application server

3. Network tokenization

Last but certainly not least, ecommerce businesses can implement network tokenization.

This type of tokenization is provided by card networks and has many security benefits. In fact, all the leading payment networks offer network tokenization. That includes:

Visa
Mastercard
American Express
Discover
and many others

Through the network tokenization process, card brands essentially replace the primary account number, also known as PAN, with a token. They do this with several other valuable pieces of information that are connected to a card. Therefore, these tokens are issued by card brands.

Ecommerce companies can accept network tokens from card brands to minimize the risk of data fraud or theft for their visitors. Digital businesses can do this by eliminating the use of raw cardholder data from the entire card life cycle. This step will ensure all active cards have the ultimate level of protection against all forms of cybercriminal activities.

Moreover, ecommerce organizations using network tokens can also qualify for lower interchange fees, higher authorization rates, and fewer declines and chargebacks, so the benefits of payment tokenization are truly worth it.

There are two key processes where tokenization is important—provisioning and authorization. Let’s go over both of them and see what network tokenization is used for here.

Provisioning

The client sends TokenEx a PAN or TokenEx token in a request for a network token;
TokenEx generates the request for a network token and passes it to the card network;
The card network sends the network token request to the card issuer;
The card issuer provisions the network token, which is then returned to the client via TokenEx.

Authorization

The client sends payment authorization to TokenEx with a TokenEx token or a network token;
TokenEx passes the payment authorization with the network token and cryptogram to the client’s payment gateway provider;
The payment gateway passes the payment authorization to the payments network;
The issuer approves the payment transaction.

Key Benefits Of Payment Tokenization

I hope you now know what tokenization is and what the main types of tokenization are for ecommerce.

Now we will outline some key benefits of payment tokenization that make this process perfect for all online organizations.

1. Enhanced security

Storing all key information in its original form can be pretty dangerous for a company. Anyone can access customers’ payment information and take advantage of it.

That’s where tokenization comes in handy, as it replaces sensitive data with undecipherable tokens. Since the tokens don’t contain valuable data, cybercriminals can’t compromise the payment details, and all customers are protected.

2. Improved customer trust

If a data breach occurs at your company, the customers’ trust will rapidly decrease due to poor security and safety features.

People will no longer feel confident sharing their personal details and banking information when placing an order, which will result in them finding another ecommerce brand that offers similar products or services.

3. Better customer experience

With enhanced security and improved consumer trust, you’ll already reap the benefits of providing a better customer experience to your business’s visitors. However, flexible tokenization features allow you to do much more than that.

Subscriptions, in-app purchases, and other handy features ecommerce businesses usually offer to their customers can drastically improve the overall customer experience. A flexible but safe data security provider can help businesses do just that.

With a good tokenization provider by your side, you’ll easily meet the latest customer requirements and ensure a smooth and seamless online customer experience.

4. Maintenance of compliance requirements

Finally, not all benefits are related to customers, and this one specifically is meant to help business owners. While it may seem like an easy task to provide credit card payment options to your customers, that’s far away from the truth.

Introducing credit card payments means your ecommerce business must be PCI DSS compliant.

Meeting all the requirements is a long and costly process, but not if you’re using tokenization. Since tokenization is a PCI-approved method for data protection, introducing credit card payments will be quicker and easier.

Protect Your Sensitive Data

You can probably tell that tokenizing sensitive data is crucial, especially for ecommerce businesses. With so many digital brands and ecommerce companies functioning strictly online, leaving all the collected information unattended and unsecured can be dangerous.

Luckily, that’s what tokenization is for. With so many benefits, incorporating tokenization is truly a must. The three main tokenization types mentioned in this article fit all ecommerce business’s needs.

However, you should always keep in mind that no defense has proven to be 100% bullet-proof. Cybercriminals are watching for the most vulnerable organizations, and they are always working on new fraud types.

The advantage of cloud tokenization is there is no information available to steal when the breach happens - so it virtually eliminates the risk of data theft.

If you are in an online business, you should definitely research more on how to protect your data because cybersecurity can make or break your business.

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