Payment integration is a new arena for many software companies and it comes with its own unique set of concepts and terminologies. One of the most critical among these is payment tokenization.
If your SaaS business is facilitating payment collection from within your platform, it’s worth educating yourself on this topic. Payment tokenization helps safeguard cardholder data, so your users can collect and process payments securely.
Let’s take a closer look at payment tokenization and how it works.
- 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
What Is Payment Tokenization?
Payment tokenization (sometimes referred to as credit 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 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 info (aka the “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 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.
Payment Tokenization vs. Encryption
While tokenization and encryption both serve the purpose of protecting credit card data, these payment technologies work in different ways.
Encryption protects sensitive data by encoding it before sending it out. 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.
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.
For businesses using a software that allows them to collect payments, the process is as follows:
1. The customer enters their debit or credit card details into the platform’s payment form.
2. A random string of characters is generated within the payment gateway’s API
3. The generated token is sent to the server, ensuring that sensitive customer data never touch the software’s servers
4. The authenticated response is returned and the confirmed token is sent to the payment system
5. The business can securely process payments with the associated token that now represents the cardholder’s sensitive data.
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, offers end-to-end security and payment flexibility for chargebacks, recurring payments, and refunds.
Why SaaS Payments Require Tokenization
Payment tokenization is ideal for businesses that have subscription 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, which is safely stored by the payments facilitator.
The Benefits of Payment Tokenization for SaaS Companies
The benefits of payment tokenization for SaaS companies are clear: They provide 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 the 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, the 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). 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.
Vulnerabilities within the SaaS Industry
Global SaaS revenue is set to grow about 38% to more than $140 billion between 2019 and 2022, according to Gartner and Help Net Security. With this growth comes increased risks for data breaches and hacks. According to one survey that analyzed SaaS companies, an average of 400 encryption keys are shared with anyone internally who has a link, and between 1,000 and 15,000 external collaborators like vendors, media, and contractors can gain access to company data.
With all those possible data breaches, especially when it comes to encrypted data, SaaS providers cannot risk having their customers’ payment information 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 – and your business.
Using Stax Connect and Payment Tokenization
Stax Connect offers payment tokenization for SaaS integrated payment features and PCI DSS security and compliance at every level using Stax’s intelligently designed payments infrastructure and products.
For more information on how payment tokenization and Stax Connect can help you, contact us today.