Steps To Implementing Payment Tokenization In the SaaS Industry
The global economy is shifting to digital currencies andtransactions. Because of this,the concern for payment security is at an all-time high. To keep the system of securing financial information and cardholder information safe, a multi-pronged approach to payment processing data security is imperative.
To secure transactions, tokenization is a practice that replaces cardholder data (CHD), like credit card information, with one or more unrelated symbols as they are randomly generated or by an algorithm.
This introduces an enhanced layer of protection that is virtually impenetrable, as the information remains meaningless to unauthorized parties without access to the original cipher key.. If your SaaS business is facilitating payment collection from within your platform, this article is worth a read to understand and secure your system. Payment tokenization helps safeguard cardholder data, so your users can collect and process payments securely.
In this guide we will discuss the following:
- What is Payment Tokenization
- How Payment Tokenization Works
- Payment Tokenization vs. Encryption
- SaaS Payment Tokenization Requirements
- Benefits of Payment Tokenization
- SaaS Payment Vulnerabilities
- Using Stax Connect and Payment Tokenization
Let’s get started.
TL;DR
- Payment tokenization (sometimes referred to as credit or debit card tokenization) involves taking sensitive information, such as credit card data or bank account numbers, and protecting it by replacing it with a token. It’s usually done to prevent credit card fraud from occurring.
- While tokenization and encryption both protect credit card data and enhance data security, these payment technologies work in different ways. Encryption protects sensitive data by encoding it before sending it out. This means plain text data (characters or numbers) is transformed into a ciphertext, which isn’t readable. Tokenization, on the other hand, isn’t reversible, as tokens are randomly generated in real time, and they replace the primary account information completely.
- Tokenization streamlines PCI DSS compliance, can improve customer retention, and provides an extra layer of security for payment collection. By doubling up on security and working with a payments facilitator like Stax Connect, you can protect your SaaS customers and your business.
What Is Payment Tokenization?
Payment tokenization (sometimes referred to as credit or debit card tokenization) involves taking sensitive information, such as credit card data or bank account numbers, and protecting it by replacing it with a token — i.e., a number that’s randomly generated by an algorithm.
It is typically used to prevent credit card fraud from occurring. With tokenization, cybercriminals cannot see actual card numbers to steal when payments are processed online or through wireless networks. Instead, the sensitive payment data is safe and sound in a secure token vault where it cannot be accessed.
It stops a common fraud from occurring where hackers will steal customers’ credit card information and then duplicate it and put it on another card, which they will then use for purchases.
How Does Payment Tokenization Work?
Typically used to facilitate digital payments, credit card tokenization is initiated when the cardholder enters their payment information ( “primary account number” or “PAN”) onto a website or when they use a mobile payments solution to make a purchase.
Before the PAN is sent to the acquirer, the token service generates a random string of numbers, referred to as the “token.” This allows the customer’s PAN to be transmitted across the web in a unique tokenized data format, so even if there is a data breach along the way, hackers will not be able to access the customer’s debit or credit card number. Let’s break this down so you can better understand how it works.
Let’s say a customer is about to start a transaction on your website. When they’re ready to pay, they’ll need to submit their PAN. Your payment processor will then take the sensitive data it’s received and send it onwards to a secure tokenization service. Alternatively, if you use hardware or software that comes with tokenization features, it’ll happen as part of the payment processing.
For the actual token generation, it’s done through a mix of algorithms, encryption techniques, and secure storage. This will generate a completely unique token that’s a stand-in for the original payment data. This string of letters and numbers is essentially meaningless and fully randomized. Then, the token will be kept in the system, instantly replacing the customers’ payment data, which is then stored in a secure vault to protect it from any breaches. Now, when your business starts to actually process the transaction, the token can be sent to the processor or tokenization provider, which will ensure the token matches the payment data. This allows the transaction to be completed, all without having to share any sensitive data to your business or any third parties.
Now, let’s say you’re a SaaS business that uses recurring billing: that same token can be used over and over, meaning you don’t need to collect that payment data each time, further reducing the risk of a data breach.
Payment Tokenization vs. Encryption
While tokenization and encryption both protect credit card data and enhance data security, these payment technologies work in different ways.
Encryption protects sensitive data by encoding it before sending it out. This means plain text data (characters or numbers) is transformed into a ciphertext, which isn’t readable. Once the data reaches its destination, it is then decrypted and the information goes back to its unencrypted form. This poses a certain weakness to the method because it allows hackers to decrypt or reverse the encryption if they can figure out the algorithm behind it.
In other words, you need to have strong key management in order to keep the data secure. The strength of the encryption is dependent on various factors, such as the type of algorithm used, how long or complex the key is, and even the security of the system that’s storing and transmitting the data that’s been encrypted. Encryption is used for several applications, such as data storage, VPNs, file transfers, and password protection.
Tokenization, on the other hand, isn’t reversible, as tokens are randomly generated in real time, and they replace the primary account information completely. Depending on the token service (e.g., Apple Pay, Android Pay, Visa Token Service, etc.), the merchant doesn’t even gain access to the credit card data; they simply receive the token and authorization indicating that the transaction is valid. Tokens are made to be irreversible: they can’t be used to access the original data that was submitted without access to the vault, making the likelihood of the data being breached incredibly slim.
While encryption was the preferred method for a while, payment tokenization has now taken over because it is less expensive and a safer method for protecting customer data. Unlike encryption, payment tokenization is centrally managed and offers end-to-end encryption and payment flexibility for chargebacks, recurring payments, and refunds.
Why SaaS Payments Require Tokenization
Payment tokenization is ideal for businesses that have subscription business models and repeat customers. This is especially true for SaaS companies offering recurring and invoiced payment capabilities from within their platforms.
The ability for platforms to automatically generate payment tokens in real-time guarantees a smooth transaction for customers every time, even though a lot is taking place behind the scenes to make the payment go through.
Facilitating payment tokenization from within the payment platform allows users to securely save customer card data without actually seeing or storing the actual credit card number. On the off chance that hackers steal tokenized payment information, they won’t be able to make a connection between the customer’s payment information to the token of payment details, which is safely stored by the payments facilitator.
The Benefits of Payment Tokenization for SaaS Companies
The benefits of tokenization for SaaS companies are clear. Tokenization is a multi-pronged approach to security that offers benefits to everyone involved, including:
- It provides an extra layer of security for payment collection which will give SaaS leaders and their platform users peace of mind. Essentially, it will ensure that customers trust handing over their sensitive card data to businesses using the SaaS platform. This will help businesses both retain current customers and attract new ones, in addition to creating greater platform loyalty.
- In the event that there is a data breach, customer information will be safe. Also, tokenization cuts back on red tape and facilitates customer transactions to go even smoother. With tokenization, it’s possible to use mobile wallets to store card information.
- SaaS companies, and any businesses that accept card payments, must be in compliance with the Payment Card Industry Data Security Standard (PCI DSS). Compliance is essential because it both helps to prevent data breaches and cultivates customer trust. The standards demand compliance from any business or organization that deals with cardholder data; failure to do so can lead to hefty fines. With tokenization and a partnership with a payments facilitator in place, SaaS businesses will be able to fulfill these compliance standards with ease, since the customers’ card information technically doesn’t ever go into their systems.
- Tokenization allows SaaS companies to not ask customers to provide cardholder data each month, making for a frictionless payment experience. This, in turn, can reduce churn and lead to higher retention rates.
Vulnerabilities within the SaaS Industry
Global SaaS revenue is set to grow from $315 billion in 2024 to $1,131 billion by 2032 With this growth comes increased risks for data breaches and hacks. According to one survey that analyzed SaaS companies: on average, 400 encryption keys are internally shared via link-based access, while between 1,000 and 15,000 external collaborators—including vendors, media outlets, and contractors—potentially have access to sensitive company data.
With all those possible data breaches, especially when it comes to encrypted data, SaaS providers cannot risk having their customers’ sensitive payment data stolen. Encryption is not enough, especially at a time when there is more remote work being done around the world and more sensitive data than ever before is being shared online and through wireless networks.
By doubling up on security and working with a payments facilitator like Stax Connect, you can protect your SaaS customers’ information, like their digital wallets – and your business.
Using Stax Connect and Payment Tokenization
Stax Connect offers payment tokenization for SaaS integrated payment features at every level using Stax’s intelligently designed payments infrastructure and products.
Our JavaScript library (Stax.js) allows you to collect, tokenize, and send sensitive card and bank information directly from your customer’s browser to our servers, so you don’t have to worry about handling such data directly. Whether it’s a one-time or recurring payment, Stax Connect provides a simple solution to accept payments securely through your SaaS platform while ensuring PCI compliance.
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FAQs about Payment Tokenization
Q: What is Payment Tokenization?
Payment tokenization involves replacing sensitive data, such as credit card information or bank account numbers, with a token. These tokens are randomly generated, providing an added level of security that renders the information useless to outside parties without the original cipher key.
Q: How does Payment Tokenization work?
When a cardholder enters their payment information on a website or uses a mobile payment solution to make a purchase, the token service replaces the primary account number (PAN) with a randomly generated string of numbers (the token). This replacement of sensitive data allows for safe transmission across the web, preventing hackers from accessing the customer’s debit or credit card number even in the event of a data breach.
Q: What is the difference between Payment Tokenization and Encryption?
Payment tokenization and encryption both aim to protect credit card data, but their methodologies are different. While encryption encodes data before transmitting it and then decrypts it at the destination, tokenization replaces the primary account information with a randomly generated string of numbers. Unlike encryption, tokenization is not reversible, providing a more secure way of protecting customer data.
Q: Why is Payment Tokenization important for SaaS companies?
Payment tokenization is especially beneficial for SaaS companies as it fits well with subscription models and recurring customers. Additionally, tokenization provides a way for these platforms to securely save customer card data without seeing or storing the actual credit card number. Tokenization also assists in achieving Payment Card Industry Data Security Standard (PCI DSS) compliance, as customer card data does not enter the SaaS systems.
Q: What are the benefits of Payment Tokenization for SaaS businesses?
Payment tokenization offers an additional layer of security, safeguarding customer card data and giving both SaaS leaders and users peace of mind. It can drive customer trust and platform loyalty, aiding in customer retention and attraction. Moreover, in case of a data breach, the customer information remains secure.
Q: What payment facilities provide Payment Tokenization?
Payment facilitators like Stax Connect offer tokenization for integrated payment features and ensure PCI DSS security and compliance at every level. Their services allow sensitive card and bank information to be directly transferred from your customer’s browser to their servers, making payment acceptance secure and effortless for SaaS platforms.
Q: Is Payment Tokenization safer than Encryption?
While encryption was a preferred method for some time, tokenization is now considered safer. The key difference is that encryption is reversible if the encryption algorithm can be deduced, while tokenization is not, as the tokens are randomly and real-time generated.
Q: How is Payment Tokenization helping SaaS companies maintain regulatory compliance?
Payment tokenization aids SaaS companies in maintaining compliance with the Payment Card Industry Data Security Standard (PCI DSS). Since customer card information does not technically enter their systems due to tokenization, it eases the process of fulfilling these compliance standards.
Q: What are tokenized payments?
Tokenized payments are payments where the primary account number (PAN) is replaced by a token during a payment transaction. This prevents actual card numbers from being seen and stolen during online or wireless network payments.
Q: What is the role of a token in Payment Tokenization?
In payment tokenization, the token represents the customer’s sensitive account information. It is generated in real-time during a transaction and is used for the safe transmission of data across the web. Any breach along the communication path will only expose the token, not the actual customer’s sensitive card data.
