How Merchants Save Money by Using Tokenization to Reduce Fraud Risks

Whether you are a merchant or processor, one of your top priorities is protecting and securing customers’ sensitive data. Since COVID-19, there has been a surge in legitimate and fraudulent online transactions. PayPal indicates that organizations from a recent report lose an average of $4.5 million every year due to online fraud. If your organization does not take data security and protection seriously, this can have devastating consequences for your customers, business, and reputation. Let’s take a look at how merchants and processors can save costs by using tokenization services to reduce fraud risks. 

What Is Tokenization? 

Before we begin, it’s helpful to know what tokenization is. Tokenization is a security solution that replaces sensitive data with a randomly generated series of numbers called tokens. Thus, if a cybercriminal tries to steal or use a token, they will soon discover that it is useless without the original data stored outside the merchant or processor’s internal systems. Indeed, tokens cannot be traced back to customers, nor can they be reverse-engineered by hackers. As a result, tokenization is a powerful security solution for any business that stores, handles, or processes sensitive information. 

How Merchants and Processors Can Save Money by Using Tokenization to Reduce Fraud Risks 

Tokenization is one of many methods used to mitigate online fraud charges and protect customer data. Keep reading to discover the specific benefits of tokenization for preventing fraud charges.   

Enhanced Data Security 

In 2021, the average cost of a data breach was $4.24 million, a 10 percent increase from the previous year’s findings. At a closer look, the average cost per lost or stolen record from a breach is $150. If merchants or credit card processors have not implemented security layers, they are vulnerable to data breaches and fraud. A tokenization provider can improve data security by replacing sensitive data with tokens.  

While it’s impossible to prevent data breaches and fraud, it is possible to lower the risks and costs associated with breaches and fraud transactions. Since tokens mask the original data, hackers will quickly move on to another victim without strong data security measures in place. Consider the millions of dollars in savings that businesses will experience annually by working with a reputable tokenization provider. 

Tokenized Data Is Useless to Fraudsters 

In today’s competitive digital market, merchants and processors are expected to protect and secure their customers’ data. This includes everything from credit card numbers to contact information. If they fail to meet this basic requirement, organizations will lose customers, profits, and brand reputation. Further, organizations will also be more susceptible to cyberattacks.  

By partnering with a tokenization provider, merchants can give their customers the confidence to make no-fuss secure payments. Additionally, payment processors can ensure that card payments are kept safe and protected from ongoing fraud risks, which will only increase with time. 

As mentioned above, tokens contain unique identifiers associated with the original data. When a customer purchases a product or service, the payment processor will receive and process the tokenized data. Instead of requesting a customer’s account number, the processor will receive a secure token. They will determine if the payment appears to be legitimate or fraudulent. Then, the processor will either approve or deny the transaction.  

Many declined transactions are genuine charges made with valid credit cards, which are called false declines. Additionally, merchants must deal with chargebacks, which occur when customers dispute a charge to their debit or credit card.  

Unfortunately, merchants are charged authorization and chargeback fees for each transaction, whether it’s legit or not. Authorization fees can range from fifteen to twenty-five cents or more, which can quickly add up over time from hundreds of thousands to millions of transactions. Chargeback fees vary by card brand, but for every $100 in chargebacks, this costs businesses an estimated $240 in time, processing fees, fines, and loss of products or services.   

Indeed, any business utilizing TokenEx services, such as our Kount integration3-D Secure (3DS), or network tokens can potentially prevent fraudulent credit card charges, chargebacks, and false declines. As a result, this can have various benefits including reducing the additional authorization fees and refunds from declines, improving customer checkout and site experiences, and enhancing overall data security. 

Let Tokenization Help Reduce Fraud Risks 

If you are a merchant or payment processor without layered security measures, you are more likely to become a victim of fraud or a data breach. We hope this week’s article helped illustrate the importance of tokenization and how it can be used to save you money, improve your data security and protection, and mitigate fraud risks. Contact TokenEx today to speak with our expert team about how we can meet your business needs and enhance your business operations and growth.  

 

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Topic(s): tokenization