Payment Tokenisation Explained: What it is, and Benefits

Did you know that payment tokenisation can reduce fraud risks by up to 60%? It’s true. For years, tokenisation has been reshaping payment security across industries from e-commerce to banking and beyond.

In today’s time, with cyber threats on the rise, businesses must focus on protecting their customers’ data without compromising the user experience. This is where payment tokenisation steps in as a game-changing solution. It replaces sensitive customer data with tokens that hackers can’t use. Enhancing security without impacting the user experience.

This blog will take you through the ins and outs of payment tokenisation, its advantages, how it works, and how it simplifies PCI compliance while taking care of customer experience. Whether you’re a fintech professional, blockchain enthusiast, investor, or e-commerce merchant, this is the only guide you’ll need to know everything about payment tokenisation.

What are tokens?

Before diving into payment tokenisation, let’s take a step back and understand the concept of tokens, what they are, how they work, and the different formats used to protect sensitive data.

A token is a randomly generated string of numbers and characters that replaces users’ sensitive payment information, such as credit card numbers, payment information, bank details, and primary account number (PAN). Since they cannot be reversed and engineered to reveal the original data, unlike encrypted data, which can be reversed with a decryption key, tokens are irreversible and hold no intrinsic value, which is useless for hackers and fraudsters. That’s why they are an effective tool to protect sensitive data during storage, transmission and retrieval.

For example, a credit card number like 4523-3734-3762-7328 might be tokenised into A23D-CB64-H5Y3-G7H8. This token has the customer’s card details and payment details. Still, it holds no value outside that specific transaction, and for recurring billing and one-click checkout, maybe the tokens are stored, but they are still not accessible without the key of a secure token vault. This helps businesses process payment securely while reducing risk and without harming the user experience.

What is Payment Tokenisation?

Payment tokenisation is the protection technology in which sensitive user data, such as credit card numbers, are replaced with a random string of characters known as a “token”. These tokens retain no meaningful data and are useless to hackers if intercepted. This process ensures that the original payment data is never exposed during transactions, which helps reduce the risk of fraud and data breaches.

How does it work?

For example, a customer makes a payment, and the sensitive payment details are sent to a tokenisation service provider (like Celeris) . The service provider will replace the sensitive data with a token, which is then used to process the transaction. The original data is stored in a secure tokenisation vault, which is inaccessible to fraudsters.

How Does Payment tokenisation Work?

Here’s a simplified breakdown of the payment tokenisation process:

What’s crucial here is that even if a hacker intercepts the token, it holds no value without access to the tokenisation vault or decryption methods. This is why tokenisation is a superior security method to traditional encryption methods.

Two types of tokenisation payment

There are two types of payment options available for the merchants using celeris tokenisation services as mentioned below:

With CVV Payment: With CVV payment, generally used for one-time transaction, and if the user opts for “save card details”, then next whenever they shop next time and during checkout they only have to submit the CVV for checkout, we already have stored card details like card number, expiry, and card holder name which makes payment experience friction less for customers.

Without CVV: This type of payment tokenisation is used for recurring billing purposes in which celeris passes the notification to the issuer bank to save the token and card for recurring billings and issuer banks generate the unique ID and give to the providers like Celeris, and unique id is stored in under secure server and then used for recurring payment in which user do not have to submit cvv or re-enter any payment details, which provides secure and seamless recurring billing experience for both customer and merchants.

An Example of tokenisation

Imagine you’re buying a pair of shoes online and you entered your credit card details, but before storing the sensitive credit card details, data protection technology (tokenisation) will replace the data with a randomly generated string of numbers or characters called “tokens” like “A1B2C3” Even if hackers can breach the merchants’ side, this token cannot be used outside of that purchase, keeping your details safe and secure.

Tokenisation vs. Encryption: A Detailed Comparison

Traditional payment methods store data like credit card numbers in plaintext or encrypted formats, prime targets for cybercriminals. With tokenisation, this data is stored as a form of tokenised version (like 123456XYZ789), ensuring that even if a hacker intercepts the token, it’s useless for them without access to a secure vault provided by a payment gateway (like Celeris). By doing so, businesses can reduce the risk of breaches while maintaining seamless payment processing.

Top 5 Benefits of Payment tokenisation for Businesses

Enhanced Security

Using tokenisation, one of the most significant benefits is the high level of security it provides, replacing the customers’ sensitive payment data like card details or payment details with secure tokens, increasing the layer of protection and safeguarding both your business and your customers.

Fraud Prevention

Studies showed that businesses using data protection technology (Tokenisation) have significantly reduced online payment fraud by up to 60%. Unlike raw payment data, tokens cannot be reused on other platforms or transactions. This makes it nearly impossible for hackers to exploit stolen payment tokens, offering an added layer of security in every transaction.

Streamlined Payment Processes

For industries like eCommerce, tokenisation has emerged as a game-changing solution, which also simplifies operations:

Marketplaces and Platforms

Online marketplaces and platforms that allow other vendors to sell their products on their platforms need a payment system to manage transactions across various sellers. With a white label payment gateway, they can provide a unified, secure and seamless payment experience while reflecting the platform’s branding.

Simplified Compliance

Tokenisation streamlines merchants’ compliance with PCI-DSS regulations by ensuring that sensitive data is not stored with the merchant. Instead, tokens are used for transactions, and merchants only have to manage the security of tokens and the key, which reduces the scope and cost of compliance audits.

Improved customer Trust

As we’ve already explained, payment tokenisation is important in today’s growing digital commerce. When shopping online from an e-commerce store, customers may be concerned about the security of personal information like card or payment details. By implementing tokenisation into their payment flow, businesses can demonstrate their commitment to protecting customers’ data, which helps them build trust and loyalty with customers.

What Types of Businesses Should Use Payment Tokenisation?

Tokenisation is not only for e-commerce; it offers significant advantages to various businesses that handle sensitive customer data, transforming security across industries.

Here’s how:

E-commerce: Tokenisation helps e-commerce businesses take the example of merchants using Celeris global checkout solution or one-click payment solution. Tokens ensure that customers’ card details are not captured or stored on the merchant’s servers, significantly reducing the risk of online payment fraud.

Subscription-Based Businesses: Tokenisation can help businesses that offer subscriptions for their products or services. These businesses need to provide a seamless recurring billing experience to customers to increase retention. Tokenisation ensures that sensitive information is replaced with tokens for ongoing payments. It provides a smooth recurring payment experience without requiring customers to provide their payment details repeatedly. This creates a frictionless customer payment experience, leading to higher transaction conversion rates.

Healthcare: Hospitals and clinics use tokenisation to secure patient payment portals. By replacing sensitive data with tokens, healthcare providers can comply with HIPAA regulations while offering a smooth billing experience.

Travel & Hospitality: Airlines and hotels use tokens to store payment details for future bookings. For instance, a frequent flyer program integrated with Celeris can tokenise card details for hassle-free reservations and additional last minute upgrades or enhancements.

Fintech: Peer-to-peer payment apps and digital wallets rely on tokenisation to protect user data. Celeris’ solutions enable secure transactions without exposing bank account or card details.

Expert’s Views and Market Research on Payment Tokenisation

Bankinfosecurity: Research conducted and published on 19 February 2025 Mastercard’s chief digital officer Pablo Fourez told Information Security Media Group that fraud rates are seven times higher online than in physical stores, as criminals exploit exposed card numbers. He said that shifting to tokenisation protects businesses from financial losses and safeguards reputation and customer trust. ” Tokenisation can reduce the fraud rate by 60%,” Ramakrishnan said.

Juniper Research: Based on the research conducted and published in 2022 by Juniper Research, Hampshire, UK – 18 July 2022: A new study from Juniper Research has found that the total number of tokenised payment transactions will exceed 1 trillion globally by 2026, rising from 680 billion in 2022. This represents a growth of 58% over the next 4 years. It attributed this growth to the rise of ‘one-click’ solutions, such as Click-to-Pay, that use card-on-file tokenisation to store a customer’s payment credentials, enabling them to auto-fill their checkout details and complete transactions via a single click.