{"id":7119,"date":"2022-11-30T00:00:00","date_gmt":"2022-11-29T16:00:00","guid":{"rendered":"https:\/\/www.fraudlabspro.com\/resources2\/tutorials\/fraud-prevention-with-tokenization\/"},"modified":"2026-05-26T18:42:56","modified_gmt":"2026-05-26T10:42:56","password":"","slug":"fraud-prevention-with-tokenization","status":"publish","type":"docs","link":"https:\/\/www.fraudlabspro.com\/resources\/tutorials\/fraud-prevention-with-tokenization\/","title":{"rendered":"Fraud Prevention with Tokenization"},"content":{"rendered":"\n
\"Fraud<\/a><\/figure>\n\n\n\n

You may heard of tokenization lately but do you know why it is becoming popular in many industries such as e-commerce merchants, payment processors, and banks? <\/p>\n\n\n\n

Fraud is what happens when someone uses illegally obtained information such as credit card information to make purchases. For online businesses, this has become part and parcel of their daily operations. Electronic transactions allow fraudsters to conduct fraudulent purchases on a global scale. <\/p>\n\n\n\n

According to Statista<\/a>, the value of fraudulent transactions made with payment cards worldwide in 2021 was projected to amount to more than 32 billion U.S. dollars. The source forecast that the figure would increase to 38.5 billion by 2027. Hence, online merchants need to find ways to mitigate such fraudulent transactions. One strategy being used by merchants and payment gateways is called tokenization. Tokenization provides an extra layer of security on the merchant side.<\/p>\n\n\n\n

What is tokenization and how does it work?<\/h2>\n\n\n\n

Tokenization functions similarly to encryption because both of their goals involve protecting the payment information from being exploited by unauthorized parties. The advantage that tokenization has over encryption is that it\u00e2\u20ac\u2122s non-reversible. No one can retrieve any credit card information or sensitive data even if they intercept the token used for a payment.<\/p>\n\n\n\n

So, what exactly is tokenization? <\/p>\n\n\n\n

A token is often just a randomly generated string of alphanumeric characters. Instead of submitting credit card information when making a purchase, the e-commerce site just uses the token linked to that user\u00e2\u20ac\u2122s credit card to complete the payment transaction.<\/p>\n\n\n\n

For a new customer, they do have to submit their actual credit card information when making their initial purchase at a particular website. The online store then submits this payment info to their payment processor to get back the payment token. This payment token is stored by the website for future purchases by the same customer.<\/p>\n\n\n\n

The online merchant does not need to store credit card information like debit or credit card number, CVV number and expiry date. As a matter of fact, tokenization can drastically reduce the chance of fraud due to data breaches at e-commerce websites. This is because tokens by themselves have no meaning nor are they embedded with sensitive data. When tokens are used together with encryption and 3D Secure<\/a> authentication, it will be almost impossible to commit payment fraud.<\/p>\n\n\n\n

Benefits of tokenization<\/h2>\n\n\n\n