What do you mean by tokenization?

What do you mean by tokenization?

Tokenization is the process of replacing sensitive data with unique identification symbols to store essential data without compromising its security.

How Data Tokenization Works

During payment processing, Tokenization replaces a credit card or account number with a token. The token is not connected to an account or individual.
The customer’s 16-digit primary account number (PAN) is substituted with a random, original alphanumeric ID. The tokenization process removes any connection between the transaction and the sensitive data, reducing breaches.
Data tokenization protects credit card and bank account numbers in a virtual vault, so organizations can transmit data safely through wireless networks.

What are the benefits of tokenization?

Tokenization provides a better experience for banks and cardholders and stronger safety and security. Because tokenization lowers fraud risk in transactions, approval rates are higher, meaning it’s less likely the bank will decline the transaction.

If the physical card is lost or stolen, cardholders can continue to use their tokenized card while waiting for a new card to arrive in the mail.

Who provides the tokens?

Token service providers issue, manage, and store tokens. Many entities within the payments world can be token service providers, including a payment network, the card issuer, or other companies, as long as they follow industry standards and regulations.

What makes a token safe?

The safety of a token is based on whether someone can figure out the information it’s replacing, and it’s mathematically impossible to determine the original value of a token. For an additional layer of security, the original information is stored in a PCI-compliant token vault, so in case of a data breach, criminals can only access the token, which is useless to them.
Even if a hacker knew where to find the token vault, they would need to get in — which is much more challenging than guessing a password.

Payment tokenization is so secure, that it’s listed as a requirement for protecting payment data by the PCI SSC.

What is the difference between tokenization and encryption?

Although they’re closely related, payment tokenization and encryption have different purposes. Tokenization replaces sensitive data with tokens that have no intrinsic value; Encryption transforms data into an undecipherable format that can be reversed with a decryption key. In other words, tokenization substitutes data and encryption transforms data.

How does tokenization relate to compliance?

Tokenization helps businesses remain compliant with industry regulations such as PCI DSS by reducing the need to store or transmit sensitive data themselves. This significantly reduces the risk of data breaches. By storing the original data in a secure token vault, entities reduce their risk exposure and chances of non-compliance.