Payment tokenisation: how it works, benefits, and implementation tips
November 12, 2025
17 min
In this article, we'll explain what payment tokenisation is, how it works, where it fits in PCI-compliant payment gateways, and how to implement a robust tokenisation service across your stack.
What is payment tokenisation
Payment tokenisation is the process of replacing sensitive payment data, such as a card's primary account number (PAN), with a secure, randomly generated substitute – a payment token. This token serves as a stand-in for the original card details during authorisation, settlement, refunds, and other payment operations.
A payment token is a unique, non-reversible identifier that represents real card data in a safe format. When a customer enters their card details at checkout or in a digital wallet, those details are sent to a tokenisation service. The service stores the original data in a secure, PCI DSS–compliant vault and returns a token for all future transactions, without exposing the actual card data again.
Put simply, tokenisation lets businesses process payments confidently and compliantly by using tokens instead of sensitive data, while the actual information remains locked in a secure environment.
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Types of payment tokens
There are two main types of tokens: network-level and merchant-level. Both serve the same purpose, but operate at different levels of the payment ecosystem.
- Network-level tokens. Also known as scheme tokens, these are issued and managed by card networks such as Mastercard or Visa. In the network tokenisation model, the card's PAN is replaced with a network-level token that's restricted to a specific device, merchant, or domain. When a card expires or is reissued, the network automatically updates the token to keep recurring payments active. This built-in lifecycle management improves authorisation rates and supports smooth, uninterrupted checkouts. Network tokenisation powers widely used services like Apple Pay, Google Pay, and Click to Pay.
- Merchant tokens. Created by a payment gateway, processor, or orchestration platform, merchant tokens are specific to a single business or platform. In this model, called merchant tokenisation, the provider generates and stores the token on behalf of the merchant, allowing it to be used across that merchant's internal systems, sales channels, and providers. For example, an online retailer might use merchant tokens to manage recurring billing or refunds without storing real card details. In a payment orchestration setup, merchant tokens also enable efficient payment routing and cascading. If one acquirer declines a transaction, the system can retry it with another, using the same token.
Tokenisation vs. encryption vs. masking
Encryption, tokenisation, and masking are often mentioned together, but each offers a different level of security.
Encryption converts readable data into an unreadable code, called ciphertext, using algorithms and secret keys. Only the correct key can decrypt it, making encryption effective for protecting data in transit or storage. However, because it's reversible, security depends on proper key management — if the key is compromised, the data can be exposed.
Tokenisation, by contrast, replaces data with a randomly generated token that holds no value and cannot be reversed to the original form. The actual data is stored in a secure token vault, accessible only through the authorised tokenisation system. This keeps sensitive data out of the merchant's systems and prevents exposure in case of a breach.
Data masking hides portions of data, often in non-production environments or user interfaces — for example, showing only the last four digits of a credit card number. It preserves the analytical or operational value of the data while concealing sensitive parts. Masking doesn't offer complete protection, since the underlying data often remains accessible to authorised users.
Encryption locks your data, masking conceals parts of it, and tokenisation removes it from your systems entirely. These technologies prevent the exposure of sensitive details, limit the impact of potential breaches, and simplify compliance with security standards such as PCI DSS.
Denys Kyrychenko
Co-founder & CEO at Corefy
Examples of payment tokenisation
- Card-on-file and recurring payments. When customers save their card details for future purchases — for example, on an e-commerce site or a subscription platform like Netflix — tokenisation replaces them with a unique payment token. It can be reused for renewals, upgrades, and add-ons without re-entering card details. If the token or database is ever compromised, fraudsters still can't access the original card information.
- Digital wallets and mobile payments. Services like Apple Pay or Google Pay rely entirely on tokenisation. When a card is added to a wallet, the issuer or card network (Visa, Mastercard, etc.) replaces the PAN with a network token tied to the device. Then every transaction uses a one-time code generated for that specific payment. It means that even if fraudsters intercept transaction data, they can't reuse the information. Thus, the real card number never leaves the user's phone or the network's token vault.
- E-commerce checkout and marketplace payments. In marketplaces or platforms, merchants can't store or transmit raw card data across multiple parties. Tokenisation allows them to share only tokens across systems, APIs, and service providers. For instance, a travel platform processing bookings from multiple airlines can tokenise each customer's card once, then reuse that token for reauthorisations, partial captures, or refunds without storing sensitive details.
- Payment orchestration platforms. In a payment orchestration environment, tokens play a crucial role in payment routing and cascading. When one acquirer declines a transaction, the orchestration engine can automatically retry the payment through another provider using the same token, not the raw card data.
At Corefy, we generate merchant-level tokens and keep the original data in a PCI DSS Level 1-compliant vault. Tokens can then be securely reused for authorisations, refunds, and reconciliation.
How tokenisation works in payments
Here's how the tokenisation process works step by step:
- Entering payment details. The process begins when a customer provides their card information at checkout on a website, in a mobile app, or through a digital wallet.
- Secure data transmission. Instead of sending the raw card number to the merchant's servers, the data travels through an encrypted connection directly to a tokenisation service or payment gateway, ensuring that sensitive information never touches the merchant's environment.
- Token creation. Once received, the service replaces the original card details with a unique token. It can be a format-preserving token that looks similar to a card number and retains its structure – for example, showing the first six and last four digits. Or a non-format-preserving token that appears completely different and may contain a mix of letters and numbers – e.g., 23c91e14-89f6-417f-9d60-76a34u0829. These tokens have no mathematical connection to the original data and cannot be decrypted.
- Secure storage. The real card data is stored separately in a PCI DSS–compliant vault. Only the authorised tokenisation system can match a token back to the original details when needed.
- Payment processing. A white-label payment gateway or payment orchestration platform uses the token instead of the actual card number to process payments, issue refunds, manage recurring charges, and perform reconciliations.
- Token lifecycle management. Tokens can be reused and managed over time. They may be restricted to a specific merchant, device, or payment channel and automatically refreshed when a customer's card is reissued or expires. For instance, network-issued tokens from Mastercard or Visa update automatically when card details change, helping businesses maintain uninterrupted recurring payments and avoid failed transactions.
Where does this live in your gateway and orchestration stack?
In a PCI-compliant payment gateway or orchestration layer, tokenisation typically occurs at the edge (SDK/iFrame) and at the processor/network boundary, ensuring sensitive data never touches your servers while remaining portable across providers for payment routing and retries.
Card tokenisation at Corefy
Let's see how card tokenisation works on our platform.
A reusable card token is created only after a customer completes their first successful payment with tokenisation enabled. Once that initial transaction is confirmed, Corefy generates a unique token that represents the card's PAN and expiry date — never the CVV. It ensures sensitive information stays fully protected and outside the merchant's systems.
Merchants can retrieve this token in several ways, depending on their setup. It can be delivered in the final success callback of the transaction, appear in the reconciliation data, or be fetched directly via API by listing tokenised cards for a given customer. From that point on, the merchant can reuse the token for merchant-initiated transactions, such as recurring charges, instant top-ups, or split settlements, without requiring any cardholder interaction.
Corefy also supports provider-side tokenisation. If a connected payment provider issues its own token, Corefy securely stores and maps it to the existing Corefy token. This mapping layer ensures the merchant's integration remains stable — they continue submitting the same Corefy token, while Corefy manages the routing and provider relationships behind the scenes.
At Corefy, tokenisation happens only after a customer completes their first successful payment with tokenisation enabled. From that moment, the system generates a unique token representing the card’s PAN and expiry date — never the CVV. This token keeps sensitive information out of the merchant’s environment while enabling secure, reusable payments and even instant payouts. Behind the scenes, Corefy manages the mapping between its own tokens and provider-issued ones, so merchants always work with a single stable reference, no matter which payment provider is involved.
Denys Naumenko
QA Lead at Corefy
Beyond recurring payments, these tokens also enable Original Credit Transaction (OCT) card payouts, since PAN and expiry data are sufficient for many payout scenarios. It allows businesses to offer instant refunds, affiliate commissions, and loyalty withdrawals through a single secure framework.
Key benefits of payment tokenisation
Payment tokenisation strengthens compliance, customer experience, and approval rates. Here are the key benefits and why they matter to merchants, payment providers, and orchestration platforms.
Lower breach impact and safer storage
Even if a system breach happens, tokenisation ensures that attackers gain nothing of value. Tokens are random identifiers with no link to the original data, so they can't be reversed or reused.
Simplified PCI DSS compliance
Handling less sensitive data means dealing with fewer compliance headaches. Tokenisation removes raw cardholder data from your environment, reducing the systems, people, and processes that fall under PCI DSS scope. While it doesn't eliminate the need for compliance, it significantly streamlines assessments and audits. Merchants using tokenisation can often complete simplified PCI validation (SAQ A instead of SAQ D), saving resources.
Improved conversion and user experience
Storing tokens enables one-click payments, seamless subscriptions, and smooth checkouts across devices. Customers don't have to re-enter their card details, yet their data stays fully protected. This means fewer abandoned carts, faster checkouts, and higher repeat-purchase rates.
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Consistent omnichannel experiences
Customers expect to pay wherever they are — on a website, in an app, or at a physical store. Tokenisation unifies payment data across all those channels. A single token can represent the same card across online and in-person environments, supporting recurring, instalment, and on-the-go mobile payments. This continuity enables businesses to offer unified loyalty programs, personalised promotions, and cross-channel analytics without storing sensitive data across multiple systems.
Smarter routing and cascading
For merchants managing multiple payment providers, tokens are the key to flexibility. In a payment orchestration setup, tokens enable advanced payment routing and cascading strategies. If one acquirer declines a transaction, the system can automatically retry it with another acquirer using the same token, not the card number. It improves approval rates, especially in high-risk or high-volume sectors like iGaming, travel, and retail.
Future-proofing your payment ecosystem
Card networks are investing heavily in token-based ecosystems. Mastercard, for example, is rolling out a plan to phase out manual card entry for online transactions across Europe by 2030, relying on tokenisation and passkeys to authenticate users.
As more issuers, acquirers, and wallets move to token-based payments, businesses that already use tokenisation can adopt new technologies faster. Whether it's biometric authentication, open banking, or digital identity tools, tokens will remain the core of secure, connected payments.
Businesses that need payment tokenisation
Tokenisation benefits any business that handles, stores, or transmits customer payment data, especially those that manage recurring transactions or operate across multiple channels.
- Subscriptions and SaaS. Streaming platforms, software providers, or online learning platforms depend on stored payment credentials. Tokenisation allows them to keep a 'card-on-file' experience without holding real card numbers. It prevents data exposure and enables automatic renewals, upgrades, and seamless billing continuity, even if a customer's card is replaced.
- Marketplaces and platforms. Multi-vendor ecosystems handle payments for buyers and sellers simultaneously. Tokenisation helps these platforms manage sensitive card data centrally while sharing only tokens between participants. For example, a ride-hailing or delivery marketplace can securely process payouts and refunds for thousands of merchants and customers without storing card details at any point.
- Travel and hospitality. Airlines, hotels, and booking platforms often need to charge customers later for no-shows, additional services, or itinerary changes. Tokenisation allows them to store payment details for future use, simplifying reauthorisations and delayed transactions. It also supports compliance with global data privacy standards, which is critical in this highly regulated industry.
- iGaming and entertainment. High-frequency transactions and strict regulatory scrutiny make payment security crucial in gaming and betting platforms. Tokenisation reduces fraud risk and speeds up the payment experience for players, helping platforms maintain trust and minimise chargeback exposure.
- Fintechs and payment facilitators (PayFacs). For fintech platforms, tokenisation supports scalable, modular payment architectures. Tokens can be shared across microservices and providers while keeping compliance manageable, letting PayFacs process transactions securely and expand faster across markets.
Implementing tokenisation: challenges & best practices
Adopting tokenisation unlocks significant benefits, but it also introduces technical, regulatory, and operational challenges that businesses must plan for from the start.
Challenges
- Token portability across providers. Merchants using multiple PSPs or migrating between acquirers face a key challenge: moving tokens without losing the link to customer accounts. Not all providers support token export or import, which can create vendor lock-in and integration hurdles.
- Legacy systems and data dependencies. Older systems often rely on storing or referencing card numbers directly. Migrating to tokenisation means updating schemas, logs, and reconciliation processes that expect a real PAN. Without proper planning, these dependencies can cause operational friction or data mismatches.
- Data residency and sovereignty. For global merchants, where and how tokenised data is stored matters. Some regions require that customer information remain within specific jurisdictions, so multi-region token vaults and clear data localisation policies are essential.
- Lifecycle and consistency management. Tokens are not static — cards expire, get reissued, or change. Ensuring they remain valid, up to date, and correctly mapped requires lifecycle management. Merchants can do this by combining network tokens, which are automatically updated by card networks, with regular checks or account updater services for merchant-level tokens.
- Edge-case payment flows. Complex payment models, such as partial captures, reauthorisations, or Merchant-Initiated Transactions (MITs), can expose gaps in token handling. Systems must be tested to ensure tokens work across all flow types, including cascading retries, recurring charges, and dispute management.
Best practices
- Keep sensitive data out of scope by design. Prevent card data from ever touching your systems. Use hosted payment fields, SDKs, or iFrames that send details directly to a tokenisation service or gateway. Your environment should only process tokens, not real card data.
- Select the right token types. Use network tokens for higher authorisation rates and automatic lifecycle updates, and merchant tokens for flexibility within your own systems and orchestration layer. Combining both offers the best balance of performance and control.
- Normalise token handling in orchestration. Treat tokens as a unified payment method across all PSPs. In an orchestration setup, this enables smooth payment routing and payments cascading without re-entering card data.
- Plan for portability and interoperability. Avoid vendor lock-in by documenting how tokens can be exported from one provider and imported into another – keep clear records of token formats, vault mapping structures, and the API methods used for token creation and retrieval. It helps to migrate your stored tokens to a new gateway or orchestration platform without losing access to saved payment data. Choose providers that support token migration and standardised vault structures, so you can switch or scale providers without disrupting your operations.
- Monitor token lifecycle events. Track every token creation, mapping, rotation, and deletion. Regular audits help detect anomalies early. A clear event trail strengthens accountability and data integrity.
- Scope and revoke strategically. Limit each token's scope to what's necessary — by merchant, device, or region — and revoke them if there's any sign of compromise. Scoped tokens reduce risk without adding friction to legitimate transactions.
- Test across all use cases. Verify that tokenisation supports every payment flow you rely on, including pre-authorisations, split shipments, refunds, and chargebacks. Consistent token behaviour builds reliability across your system and providers.
- Choose reliable partners. Work with providers that ensure PCI DSS compliance, vault security, and high uptime. Prioritise those that support multi-PSP orchestration and offer transparent SLAs, clear regional coverage, and well-documented token lifecycle management.
Future of tokenised payments
Tokenisation is quickly moving from a security layer to a core part of payment infrastructure. Card networks are now issuing tokens by default, digital wallets rely on tokenised rails, and online checkouts are blending with new authentication tools like passkeys and Click to Pay. Mastercard's plan to end manual card entry in Europe by 2030 shows just how fast this shift is happening.
The trend goes far beyond cards. The same approach is applied to bank accounts, open banking connections, and account-to-account transactions. Tokenisation is becoming the common language of digital payments — keeping credentials safe while enabling faster, easier transactions.
For businesses, the future lies in using merchant tokenisation alongside network tokens within a flexible payment setup. This combination allows merchants to process payments confidently across providers and channels, without taking on additional security risks or compliance pressure.
In the bigger picture, tokenised payments are shaping a world where businesses can grow without worrying about data exposure. Tokenisation helps more transactions succeed and gives companies the freedom to scale with confidence.
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