What Do You Need to Know About Card Tokenization?

By Magesh Ramanathan . January 14, 2022 . Blogs

In Sep 2021, the Reserve Bank of India announced that Indian merchants will not be able to store any confidential credit and debit card information on their servers post Dec 2021. While the deadline has been extended by six months, the fact remains that organizations need to be prepared for this disruption.

The Reserve Bank of India (RBI) had recently announced that no organization can engage in Card-on-File (COF) transactions by storing card details on their servers. They have to implement tokenization on their payment channels to ensure optimal security to consumers’ data privacy.

India is not the first country to adopt card tokenization so extensively. North America was among the earliest adopters of tokenization technology, followed closely by Canada, the United Kingdom, and Germany. Since then, technology companies like Paymetric, Broadcom, Hewlett Packard, have been working on creating bespoke solutions for tokenization. Many more companies are following suit to make the Tokenization Solution Market worth USD 4.8 Billion by 2025, growing at a CAGR of 19.5% from the year 2020.

But what does tokenization do, and why are global BFSI companies sprinting to get on board this bandwagon? Let’s discuss that.

What is Card Tokenization and Why Has It Become So Important?

Simply put, card tokenization is a process of replacing confidential data from a company’s internal network with ‘tokens’. The tokenization process was invented to protect sensitive data and companies from the consequences of potential data breaches.

In today’s connected world, the digitization of monetary transactions can never be safe. No matter how stringent security measures are used, hackers can always find a way to intercept the communication on networks and make use of vulnerable data to meet their private ends. Storing such sensitive data is not safe if the company doesn’t have high-maintenance security measures.

Tokenization eliminates this risk by storing all the card information on separate and more secure third-party servers or tokenization platforms. These platforms, while storing the information, create a token that is later used to fetch the required data and send the same to payment service providers.

These tokens can then easily be stored by the company. And since they do not contain any details of the cards themselves, can be stored without stringent data protection measures.

How Does Card Tokenization Work?

Card tokenization begins from the customer’s end-point and terminates at the merchant’s payment processor, just like any conventional transaction. It’s the intermediary process that makes tokenization a secure and reliable tool.

For instance, when a customer makes a credit card transaction for the first time, that information is sent to the server and then to the tokenization platform. The platform returns a token as a reference. This token can now be stored on the company’s internal network without posing any risk to the customer’s sensitive data.

Each time the same customer makes any new transaction using this token, the server places a payment request to the tokenization platform, which then can retrieve and send the relevant information to the merchant’s payment gateway channel. Next, the payment service provider processes the transaction like any traditional one, and then sends a confirmation message to the server acknowledging the payment completion.

Next, let us look at some business benefits of card tokenization.

Business Benefits of Tokenization

Here are some of the business benefits of card tokenization:

  • Data security: The reality is that data breaches are here to stay, no matter how much organizations prepare for data security. On its part, tokenization promotes the de-identification of confidential data that is the best bet against breaches. With companies tokenizing the credit card details of their customers, they only need to save the referenced tokens in their vaults. The token then can be used by customers to make quicker payments, and the tokenization platform can then take care of the rest of the security practices.
  • PCI compliance: Companies dealing with credit card transactions were expected to store the credit card information under stringent security configurations. These configurations were dictated under security standards like the Payment Card Industry Data Security Standards (or PCI DSS) and were changed regularly as new threats were introduced in the market. This incurred major security expenses for companies that choose to store credit card information to retain customers. With tokenization, these companies can still offer a similar experience to their users, while making major cost reductions on the data security front. This works, as PCI doesn’t ask for any additional security measures on the tokenized data.
  • Better User Experience: Today’s consumers have come to expect a smooth user experience with any brand. For example, if an online eCommerce store asks them to keep entering their credit card information, shoppers are likely to lose interest and switch to a competing platform. Storage of credit card information for a better user experience can prove to be a beneficial investment for new businesses. This is where tokenization can play a crucial role. Without imposing any data security concerns over the business, tokenization can offer a seamless brand experience to the users. 
  • Data Portability: Data portability can become a major concern for businesses when they choose to migrate their payment gateways. The payment service provider, knowingly or unknowingly, can lock in payment-related data, making it difficult for companies to offer a seamless transactional experience to users. With tokenization, payment companies can resolve this issue effortlessly. When a tokenization platform creates a token, it designs it to be portable. This means the generated token can now be sent over various networks and be stored without any risk to the information security. So, when merchants migrate their payment channels, they only need to send the token to the platform, where it will get processed by itself regardless of the payment service provider.


Businesses that accept credit card payments and store the relevant information, must comply with the PCI guidelines. However, complying with PCI requirements is not an easy task, with the need to maintain strict security measures to protect customers’ data.

Tokenization is a better solution for all these companies. By saving the tokens in place of credit card information, this technology can ensure a perfectly flawless experience for users, while ensuring that their data remains secure.

As a payment solution provider, Verinite has unlocked business value for its customers in the financial services domain. Not sure of how you can transition to the world of card tokenization? Verinite can help you. Get in touch with us right away.

Magesh Ramanathan

Magesh Ramanathan is a Delivery Manager in Verinite. Associated with BFSI domain from the start of the career. Believes in "Don't wait for the Opportunity, Create it". Football Fan and love to listen music

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