Strengthening Credit Card Security: PCI Compliance Through Tokenization

By Prathima Bandi

The Payment Card Industry Data Security Standard (PCI DSS) outlines the necessary steps for businesses to protect sensitive payment data, and among the arsenal of security measures available, tokenization emerges as a robust solution.

Challenges in Loyalty Programs without tokenization?

One effective business strategy to address low point redemption rates is to partner with other businesses to allow interchangeability of reward points within a shared scope of services. This approach requires meticulous management of loyalty point accounting, where each party must audit transactions and protect data from fraud. Consequently, joint loyalty programs can quickly become complex and costly endeavors. Retailers face several challenges, including the expenses of establishing, operating, and securing loyalty points programs, the low redemption rate of earned points, customers perceiving the signup process as overly complex, and the crucial need to protect program data from hacking or account balance alterations.

· Account inactivity: A predominant issue is account inactivity, where customers sign up but don’t actively participate, leading to low redemption rates. This scenario illustrates a lack of engagement and perceived value in the rewards offered.

· Inefficiency: Additionally, time delays in accruing and redeeming points can deter customers from using the programs, while high transaction and system management costs escalate operational expenses for businesses.

· Acquisition costs: Customer acquisition costs are also substantial, as brands invest heavily to attract new participants to their loyalty programs.

· Retention: Despite these investments, maintaining high client retention rates remains a significant hurdle. Many programs struggle to keep customers interested and invested over time, leading to a drop in program participation.

Why Tokenization is important in Loyalty?

• Tokenization facilitates the seamless integration of loyalty programs within broader ecosystems, offering customers a unified rewards platform.
• Using PCI DSS, businesses can collaborate with partners to establish an interconnected ecosystem where customers can earn and redeem across multiple brands and industries.
• PCI DSS integration amplifies the overall value proposition for customers, enabling faster reward accumulation and access to a diverse array of redemption opportunities.
• Tokenized loyalty programs go way beyond the classic plastic card approach and take businesses to the next level of customer interaction without intermediaries, compromising privacy, or competitiveness.
• For consumers juggling loyalty programs, tokenization could provide instant redemption for loyalty points on a single platform. With only one “wallet” for points, consumers would not have limitations and could simplify getting and redeeming points for the program’s options.
• By adhering to PCI DSS, businesses demonstrate their commitment to protecting sensitive credit card data against potential breaches.

Understanding Tokenization

Tokenization is a method used to replace sensitive data, such as credit card numbers, with non-sensitive placeholders called tokens. Unlike encryption, which can be decrypted with the correct key, tokens are randomly generated and have no inherent value to hackers. This ensures that even if a cybercriminal obtains the tokenized data, they cannot reverse-engineer it to access the original credit card information.

How Tokenization Works for Credit Cards

Step 1: Example: Customer “John” orders an item via online portal/app/ via pos and proceeds to the payment section. The customer enters sensitive information, such as their credit card number and cardholder details, into the portal. Merchant Example: Amazon, Uber, Netflix, etc.

Step 2: This goes straight to the tokenization server without storing any data on the merchant application’s server. There are many tokenization providers on the market, like Fiserv, Mastercard, American Express, TokenEx, 3D Delta Systems, MEA wallet, etc. Then it reaches the token vault, where the original data is secure. It, in turn, returns a token of randomized alphanumeric representation of the same length. This has no relation to the original data, like in the typical ‘data encryption process. The actual data is contained within the ciphered text. Tokens are, in general, generated by mathematical algorithms.

Step 3: This token is now passed to the merchant’s acquirer bank, and this bank passes the token to the credit card network. Major Acquirer banks provide payment processing services such as Barclaycard, Elavon, Global Payments, Lloyds Bank Cardnet, and Worldpay.

Step 4: Then the card network processes the token and maps it to the customer’s account number, authorizes it, and passes it to the issuing bank. Authorized card networks such as RuPay, Visa, MasterCard, American Express, and Diners Club.

Step 5: The issuer bank now authorizes or denies the transaction based on the fund balance. After the successful transaction, a unique token returns to the merchant. Credit card issuers include HDFC Bank, ICICI Bank, and SBI Card.

Step 6: The merchant now has no record of John’s sensitive original information but customer tokens. In this way, the merchant can enable John (the customer) to make one-click payments the next time he shops.

Loyalty Tokenization Process

Let’s consider an example where a bank is an EPCL client, and a merchant partners with the bank. The merchant sends transactions using PCI compliance, and EPCL, also adhering to PCI compliance, manages the loyalty rewards process.

· Bank Synchronization: EPCL client accounts, such as banks, synchronize with EPCL using tokenized keys and the customer’s account number via batch file transfer. The data is subsequently stored in the EPCL database.

· Token Transmission: Whenever a merchant, such as Amazon or Netflix, passes the tokenized value to Epsilon (EPCL) as specified in the protocol.

· Secure Data Handling: The data is securely transmitted to Epsilon using encryption, adhering to secure Token Vault standards.

· Token Matching: Epsilon consults its token vault to match the token with the customer’s account number. EPCL compares the token received from the merchant with the token keys stored in its database. If the tokens match and the customer’s identity is confirmed, Epsilon will reward or redeem points for the customer based on the type of transaction received from the merchant.

· Response to Merchant: Epsilon sends the processed information back to the merchant.

Benefits of Tokenization for Credit Card Security and PCI Compliance

1. Data Protection: Tokenization minimizes the risk of data breaches by removing sensitive credit card data from the merchant’s environment. Even if a breach occurs, hackers would only access meaningless tokens, not usable credit card information.

2. Reduced Compliance Scope: Since credit card data is tokenized and not stored locally, the scope of PCI compliance is significantly reduced. This simplifies compliance efforts and lowers associated costs.

3. Enhanced Customer Trust: Implementing tokenization demonstrates a commitment to customer data security, fostering trust and loyalty among consumers.

4. Streamlined Operations: Tokenization streamlines payment processing operations by eliminating the need to store and manage sensitive credit card data internally.

Considerations and Best Practices

· Choose a Reliable Tokenization Provider: Select a reputable tokenization service provider with a track record of security and reliability.

· Maintain Security Hygiene: Even with tokenization in place, businesses must continue to implement other security measures outlined in PCI DSS to safeguard their systems and data.

· Stay Informed: Keep abreast of emerging threats and evolving security best practices to continuously strengthen your credit card security posture.

Conclusion

Tokenization serves as a cornerstone in the quest for robust credit card security and PCI compliance. By replacing sensitive credit card data with tokens, businesses can mitigate the risk of data breaches, streamline compliance efforts, and bolster consumer trust. Embracing tokenization not only safeguards against potential cyber threats but also underscores a commitment to protecting customer data in an increasingly digital world.