Tokenization: Why Mobile Pay is Secure

Mobile Pay has made it quicker and easier than ever to check out at a store. At many stores, you can now make a purchase just by holding your phone or smart watch up to the payment terminal. It takes just a second or two for the payment to process, and then you’re on your way. It’s faster than swiping or inserting your card, for sure, but it’s also more secure, and that’s because of a technology called tokenization.

What is tokenization?

Tokenization is the process of replacing a card’s 16-digit account number with a unique alternate card number, or “token.” Tokens can be used for mobile point-of-sale transactions, in-app purchases or online purchases.

What is the benefit of tokenization?

Tokenization reduces card fraud and increases security. When you load your card information into a digital wallet (like Apple PayTM or Fitbit PayTM) and then make a purchase by holding your device up to the terminal, a token is generated.

This token represents your card number, but your actual card and account number are never entered—or swiped—into the merchant’s system. The token is transmitted to the merchant’s system via a radio frequency produced by a tiny antenna in the device. If a hacker were to steal that token, they wouldn’t be able to do anything with it because a token can only be “decoded” or detokenized by the original tokenization system, which fraudsters don’t have access to.

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Editor’s note: parts of this article were sourced from NerdWallet, CreditKarma and Visa.