In Latin America and around the world, digital wallets have become the favorite payment method for people: it is estimated that by 2024, over one billion users will have adopted this payment method. Among the reasons explaining this success, one of the main ones is the convenience they offer, allowing payments directly via mobile phone or smartwatch through NFC (contactless) technology. With this, it's no longer necessary to carry physical cards to continue paying securely!
In addition to the advantages these wallets provide to the end user (who actually owns the card and uses these tools), companies and financial institutions that issue their cards and offer this tokenizing technology (digitally convert them) also benefit. It is no surprise that more and more machines accept NFC payments.
In this post, we delve into how this tokenization process works, why it is a good business opportunity, and what possibilities customers have when adopting this feature.
Tokenizing an object (such as cards) means converting its physical version into a virtual token, encrypted to protect confidential data linked to this object. In the case of cards, tokenization means their digitization into digital wallets like Google Pay and Apple Pay, encrypted to conceal card data and provide proof against data theft attempts.
Tokenization simplifies the payment process, eliminating the need to share actual card information during transactions and thereby making them more secure. You confirm the amount, bring your phone/smartwatch close, and in seconds, purchase approved! And all of this is done without the risk of user data being compromised, even during a security breach (such as a cyber attack on the card-issuing bank or the interception of a merchant's payment terminal).
The user adds a card to a digital wallet. There, confidential information (card number, security code, and expiration date, among others) is encrypted (encoded into indecipherable numbers, protected by a secret key) and stored in a secure place, commonly known as a token vault;A unique token is generated, related to the encrypted information. This token serves as a proxy for confidential information and is used to make purchases;When a purchase is made, the token is used instead of the original confidential information. The token is sent to the merchant and/or payment processor, who use it to complete the transaction securely;Then, the token is decrypted by the card network/brand (the only entity in the process that can do this), which sends all the transaction information for approval;For security reasons, each card can only generate one token per wallet, per device, and per merchant. And it can be removed from each of them if the user needs or wants to!Although there are increasingly more digital wallet players worldwide, those that have become popular mainly because they are already integrated into devices are Apple Pay, Google Pay, and Samsung Pay. While Apple Pay allows its customers to add credit or debit cards to the Wallet app (on iOS devices), Google Pay does the same for Android devices through the Wallet app. And Samsung Pay, in turn, has its wallet integrated as an application on its devices.
All these digital wallets allow for secure purchases via a mobile device in various establishments that accept contactless payments, whether physical stores, digital stores, or even apps. They offer technology associated with major card brands that enable issuing banks to integrate with their payment systems. Each service is available in dozens of countries around the world, and users can simply open their digital wallet while traveling and pay as if they were in their own cit.
Tokenizing cards for payment with NFC technology is a one-way street for those using this payment method: contactless payments are growing by more than 40% annually and are expected to reach one billion users worldwide by 2024. In Brazil, for example, the majority of machines in circulation accept NFC payments, and the contactless model already represents 60% of in-store purchases in 2023.
Security and privacy: Tokenization eliminates the risks associated with data theft and reduces the costs associated with fraud, providing more peace of mind to the user;Less risk to your business: With the security and predictability that token payments allow, there is less risk of severe financial consequences for your business in the event of data breaches. It is also worthwhile to offer users additional security and antifraud mechanisms;Convenience and practicality: The tokens used in purchases prevent users from having to manually enter all card data, making the payment process faster and smoother;Competitive advantages: By adopting tokenization, the advantages we saw earlier are:Improvement in the conversion rates of your cardholders, as well as the overall experience of your customers.And, with a market increasingly demanding in terms of security and risk mitigation, adopting tokenization helps to stand out from the competition, in addition to meeting important market information security requirements, such as PCI-DSS certification.All set? Now all that's left is to prepare your project and take advantage of the benefits that tokenization will guarantee for your users!
Journalist and Master in International Relations from Rio de Janeiro. He was a reporter, editor, producer, and researcher before joining our Marketing team. Curious and playful, he compares himself to a sponge: wherever he goes, he likes to absorb, learn, and experience what each place uniquely offers. He loves music, books, pets, cooking, social issues, soccer, and tennis.
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