Payment Tokenization Explained

October 14, 2022Sandra Wróbel-Konior

What role does payment tokenization play and how it combines security with end-user experience? Read on to learn the details.

As the number of ways to make online purchases expands along with technology development, the payment industry requires solutions that reduce the risk of fraud and data breaches. That’s why payment security is on the agenda of every online business, as it needs to protect customers’ data from cyberattacks.

Tokenization applies to every industry, and businesses are increasingly using it because it provides a stateless, data-centric approach with fewer security flaws and risks. It’s estimated that the tokenization market will grow to $2.7 billion by 2028

According to the Global Tokenization Market Insights and Forecast to 2028 report, North America leads with a market share of around 58%, followed by Europe and Asia-Pacific with shares of roughly 23% and 12%, respectively. North America is expected to be one of the most profitable regions due to a variety of factors such as an increase in eCommerce payments, online gaming, and shopping, a fully regulated market, an increase in online streaming, increased smartphone usage, and an increase in cyberattack cases.

What is tokenization in online payments?

Tokenization is used in the card payment industry to protect sensitive cardholder data in order to comply with industry standards and governmental regulations. Simply put, it replaces the card data and secures it with randomly generated tokens.

More specifically, tokenization is replacing sensitive information with random strings of characters known as tokens. During the payment process, tokens are used to represent cardholder information, such as a 15- or 16-digit card number or bank account details, so the data can be passed through a payment gateway without exposing the card details.


  "id" : "tok_NGsyDoJQXop5Pqqi6HizbJTe",
  "created" : 1415810511,
  "objectType" : "token",
  "first6" : "42424242",
  "last4" : "4242",
  "fingerprint" : "e3d8suyIDgFg3pE7",
  "expMonth" : "11",
  "expYear" : "2022",
  "cardholderName" : "John Doe",
  "brand" : "Visa",
  "type" : "Credit Card",
  "country" : "CH",
  "used" : true,
  "card" : {
    "id" : "card_8P7OWXA5xiTS1ISnyZcum1KV",
    "created" : 1415810511,
    "objectType" : "card",
    "first6" : "424242",
    "last4" : "4242",
    "fingerprint" : "e3d8suyIDgFg3pE7",
    "expMonth" : "11",
    "expYear" : "2022",
    "cardholderName" : "John Doe",
    "customerId" : "cust_AoR0wvgntQWRUYMdZNLYMz5R",
    "brand" : "Visa",
    "type" : "Credit Card",
    "issuer" : "Card Issuer Name",
    "country" : "CH"

The tokenization method is also widely used due to the Payment Card Industry Data Security Standards (PCI DSS), which have pushed payment tokenization adoption. Tokens can be safely stored and processed outside of a PCI DSS-compliant environment because it provides merchants with a one-to-one replacement for a card's Primary Account Number (PAN). This means that sensitive data never touch the merchant’s servers.

When a customer makes a purchase through your website or application, they put the relevant card details into the Custom Form, click the ‘Pay’ button, and then the information is sent to Shift4. That information is tokenized, and you’re provided with a token.

How the token works

As previously stated, the card token is a temporary representation of card details (generated from a PAN); it must be utilized within 24 hours of creation, or it will expire. Tokens, in other words, are temporary, are securely stored, and are simple to create. 

Tokens are automatically generated in real-time during a payment transaction (the PAN is substituted by a token), so it doesn’t slow down the process. 

Within the Shift4 API, we provide you with a Public and a Secret Key. The Public Key can be accessed via web browser applications and mobile devices, and it’s used to create the tokens. The Secret Key is simply used for all the backend work.

There are two ways you can use a token: you can create a Customer or make a Charge. 

When you create a Customer, all pertinent card data and details are saved with that associated customer for an infinite period. This will make it easy to quickly create subscriptions or charges in the future. Plus, with the charge, you make a one-time payment transaction.

The customer's credit card information is securely stored so that a merchant can charge subsequent purchases using a token. What’s important here is that a merchant doesn’t see or store the credit card number, which greatly protects both customers and the merchant’s system from fraudulent activity.

Benefits of payment tokenization

Tokenization has been used in various ways for years and is one of the most effective methods of transferring sensitive information, but for the payment industry it turned out to be more secure and cost-effective. Payment tokenization adds an extra level of security to credit and debit card payments and is an effective method of combating fraud.

There are several ways merchants can benefit from payment tokenization. The most common are as follows:

  • Enhanced security. Even if a fraudster steals tokenized data, they will not use it because the token cannot be linked to credit card information stored as a token. Tokenization greatly reduces the risk of sensitive data being exposed.

  • Cost savings. A merchant can save money on PCI compliance by partnering with the right payment platform, and their customers' data can be managed securely.

  • Improved user experience. Customers can store credit card information in their mobile wallets or at checkout during online payments to be recharged without revealing the original card information. Tokens enable merchants to provide a smooth payment flow and a much better user experience by allowing them to be used in subscriptions and one-click payments for future transactions.

Tokenization also contributes to reducing the scope of PCI compliance by allowing fewer system components access to cardholder-sensitive information. A merchant, on the other hand, doesn’t have to worry about storing card data on their servers if they work with a reputable payment platform that is PCI-compliant.

Wrapping up

Every online transaction carries the risk of fraud, so it's critical to keep it to a minimum. Tokenization solves the problem of storing real credit or debit card data while also assisting in the security of the payment process on your website or mobile application.

Payment tokenization is particularly beneficial for merchants who accept recurring payments, provide one-click purchases, or accept quick mobile payments. The method of substituting real card data during a transaction is one of the most effective ways of protecting customer data, so it’s no surprise that more and more platforms adopt this approach.

Customers' data is securely stored, allowing them to save their payment information during an initial purchase and use one click for future transactions on a specific website. Merchants can use the data to create a purchasing history for each customer's account and launch a loyalty program.

In the event of a data breach, there is very little chance that the token will be actively used by a fraudster because it is a string of meaningless characters that say nothing to a cyberattacker.

A customer puts the relevant card details into the Custom Form, and when they click "Pay," Shift4 receives the information and tokenizes it. We provide you with the token, and using it grants you access to two things:

  • you can make a charge, by creating a new Charge object or

  • create a Customer object which saves the card details with that customer, and then you can make future charges and subscriptions.

Here’s the process in short:

  1. The customer enters their card details into the payment form.

  2. A token representing card information is created in the payment gateway’s API and sent to the token server.

  3. The authenticated response is returned, and a token is sent to a merchant’s system.

  4. The merchant can securely process payments with a token that represents the cardholder’s data.

As a result, each time a customer makes a payment with their device, the platform will be able to authorize the subsequent transaction without displaying the customer's sensitive data.