How to Choose the Right Payment Tokenization Model for E-Payments
✨Key Points
1️⃣ Payment tokenization keeps card data safe by replacing sensitive details with secure tokens during digital transactions.
2️⃣ Single-use tokens = max security, perfect for one-time, high-risk payments where fraud prevention matters most.
3️⃣ Multi-use tokens = speed and convenience, ideal for subscriptions, repeat purchases, and loyal customers.
Besides speed and convenience, businesses need to offer digital payment systems with topmost security to attract customers.
Enhancing their experience while expanding the online and offline presence requires offering transaction gateways that are safe to share details.
Payment tokenization is an appropriate approach for the concern, which helps safely perform the transaction without the risk of exposing details even on being compromised.
Since the tokenization can be performed during each payment or once for multiple uses, the dilemma remains for businesses on what to choose.
The article covers this aspect by shedding light on single-use and multi-use payment tokenization and the parameters to consider for decision-making.
Understanding Payment Tokenization
Making payments for bills or subscriptions often requires sharing sensitive data, such as the Primary Account Number or PAN.
Since this data is vulnerable to theft, payment systems use tokens.
These are randomly generated and unique strings of characters that replace the PAN during transactions.
The tokens are non-reversible, making them unable to be converted into the original PAN or card details.
The process of creating and assigning tokens is referred to as payment tokenization.
Applications of Payment Tokenization
Payment tokenization is an effective approach to safeguarding financial data. Here is where there are commonly used:
- In-store and contactless payments: They are used at Point-of-Sale (POS) systems for securing data after the customer swipes, dips, or taps the card.
- E-commerce and recurring billing: These are used to offer the customer convenience to perform one-click checkout. It offers ease by not requiring the entry of details for every payment.
- Business-to-Business (B2B) payments: They are used to manage one-time payments or handle multiple and complex transactions.
- Unified commerce: To offer the user the convenience of beginning their transaction on one channel (mobile app) and completing on another (in-store).
What Are Single Use Payment Tokens?
Single-use tokens refer to the tokenization of data for only one specific transaction.
The generated token can not be used again, making it useless for other transactions.
They are ideal for online or mobile transactions to enhance security, meet compliance standards, and prevent data breaches.
The single-use tokens are a better choice for the following situations:
- High-risk transaction environments: Businesses operate in sectors with high fraud risk. It includes services like ticketing platforms, online gaming, travel booking, and others.
- One-time payment models: Brands that offer one-off purchases, such as digital product sellers, e-commerce marketplaces, and others.
What Are Multi-Use Payment Tokens?
Multi-use tokens are the tokens that can be used for more than one type of financial transaction within the same business or group of businesses.
They generally operate within a closed-loop system and hence work inside a specific business ecosystem. They can be used repeatedly under controlled and secure conditions.
The multi-use tokens are an appropriate choice for the following situations:
- Loyalty programs: Brands allowing customers to redeem value across different products or services.
- Subscription-based or recurring billing payments: Businesses that offer OTT subscriptions, gym memberships, or similar payment models. It includes services where customers can make payments repeatedly without their card data being stored.
- E-commerce brands with repeat customers: Online businesses that encourage frequent purchases, such as food ordering apps, grocery delivery, and others.
Factors to Consider When Choosing Between Single-Use and Multi-Use Tokens
The single- use and multi-use payment tokenization can be chosen based on the following factors:
Security Requirements
- Single-use tokens: They offer the highest level of security as each token is valid only for one transaction. Thus, even if compromised, it cannot cause any harm.
- Multi-use tokens: Though secure, they come with a comparatively higher risk due to their validity for multiple transactions. If compromised, they may enable repeated unauthorized attempts until revoked. The stronger monitoring and token lifecycle controls must be implemented to prevent such scenarios.
Customer Friendly Service
- Single-use tokens: These tokens need to be generated before each transaction. The device authentication and other such procedures slow down the process and may impact customer satisfaction.
- Multi-use tokens: These tokens are already generated and hence offer quick repeat purchases. The stored payment methods and automated subscription renewals reduce user input requirements and speed up payment processes.
Operational and Storage Costs
- Single-use tokens: The new token generation for each transaction increases long-term operational expenses. The database grows exponentially, leading to the requirement for additional storage infrastructure. It increases processing timing for data search and also holds the potential for token collision scenarios. It means the system may generate identical tokens for different data, requiring a strong validation process.
- Multi-use tokens: These tokens eliminate the mentioned issues due to the reuse option. The one-time token generation does not require re-entry of the details and hence additional storage. It lowers operational burdens, improves transaction processing speeds, and reduces customer churn.
Regulatory and Compliance Considerations
- Single-use tokens: Industries with strict security and compliance requirements need to use one-time value tokens. It includes finance and the healthcare industry.
- Multi-use tokens: The businesses with a preference for customer convenience can choose this option to streamline recurring billing or support cross-channel payments. These tokens can be used while still maintaining PCI DSS compliance requirements.
Scalability
- Single-use tokens: The voluminous data makes it less scalable as the constant token generation increases system load.
- Multi-use tokens: The reusability and fewer storage and maintenance issues make it a scalable business payment model.
Conclusion
Single-use tokens are one-time-generated tokens that are rendered non-useful after each transaction.
The multi-use tokens, on the other hand, can be used multiple times.
The choice between single-use and multi-use tokens depends on balancing security, customer convenience, operational efficiency, and scalability needs.
Single-use tokens are good for high-risk one-time transactions, making them ideal for industries with strict compliance requirements.
Multi-use tokens support recurring billing, faster checkouts, and unified commerce. The decision can be made based on the nature of transactions, risk exposure, and long-term growth plans.
