Alliant Credit Union

A lot of the recent buzz about mobile payment services – like Visa Checkout and Apple Pay – has centered around protection against retailer data breaches. But very little of the media coverage of these services has explained why you can feel safer when you pay with Visa Checkout or Apple Pay – or other mobile payment services like Google Wallet and PayPal.

Every debit and credit card payment involves security procedures and technologies used by the retail outlet, the credit card company and the bank or credit union that issued the card. Because of this, explanations of mobile payment security are often filled with technology jargon about encryption and other high-tech processes, and they can read like a foreign language to the average person. So we’re not going to go into detail on all the technologies and tactics used to protect your payments against fraud. Instead, we’ll focus on just one key part of the security offered by mobile payment services: tokenization.

Tokenization was described by IT newsletter ZDNet as “one of the most secure and fraud proof payment mechanisms available.” But what is it and why does it make your transactions more secure?

In systems using tokenization, the valuable information – in this case, your actual 16-digit credit or debit card number – is replaced by a number called a token. The token is a randomly generated, unique number assigned for a specific merchant. Because the store or restaurant where you paid only has the token number, not your real card number, your accounts are protected.

If a store where you pay using a mobile payment service is hacked and your transaction data is obtained by fraudsters, they’ll only get the token. Your actual credit or debit card number won’t be compromised. And because your token is unique to that merchant, it can’t be used to make purchases anywhere else.