Tokenization

What is tokenization?

Tokenization is essentially a process that involves transforming sensitive data into nonsensitive data. The non-sensitive data that is created is called a “token” and can be used in a database or internal system without putting the sensitive data at risk.

Data that is tokenized becomes undecipherable and irreversible. No mathematical relationships exist between tokens and the original data. The token is essentially a nonsensitive placeholder that then gets stored outside the original source.

When you want to retrieve the original sensitive data that has been tokenized, the tokenization solution will exchange the token for the original data.

Even though the tokens are unrelated values, they retain some elements of the original data, usually length or format, so they can be used for uninterrupted business operations. The original sensitive data is stored safely outside of the organization's internal systems.

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Why is data tokenized?

Tokenization involves replacing sensitive data with randomized data that is in the same format as the original but carries no intrinsic value, the actual tokens become useless to people with malicious intent.

This means that fraudsters cannot gain anything from the tokens. These tokens are worthless to them.

Tokenization results in safer, smoother experiences, especially when payments are involved. It is more than just a security technology. It even helps in improving the customer experience and increasing your customer satisfaction levels.

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What are the benefits of data tokenization?

Tokenization is simple but has many benefits. Here are the five most prominent benefits of tokenization:

1. Reduction in risk

Tokenization can’t really protect you from a data breach; but it can certainly reduce the risk and negative financial impact that comes from a data breach. 

Let’s say that a hacker targets a system that would contain payment information. If the information was tokenized, the hacker could not do anything with that information. They can’t make fraudulent purchases with the payment information and nobody would gain any value by purchasing this information from them.

Essentially, if your data is tokenized, there really isn’t any valuable information that a hacker can steal from your system. So, while it can’t actually protect your business from a data breach, it can be used to minimize the financial fallout from any potential breach.

2. Increase in customer trust

Your customers don’t want unauthorized people getting their hands on their data. A study has shown that 59% of consumers lost trust in companies after data breaches. It’s kind of obvious, consumers want safety and security wherever they shop.

Using tokenization ensures that nobody can steal your customer’s personal information. This increases customers trust in you and makes them more willing to do business with you.

3. Simplifies subscription-based purchases

Tokenization allows you to store your customers’ payment information safely, without anyone getting their hands on it. It creates a safe environment for recurring payments. 

This makes customers more comfortable with storing their payment information on your systems and subscribing to your offerings.

4. Compliance

If your systems store credit card information, you need to be PCI DSS (Payment Card Industry Data Security Standard) compliant. Data tokenization can help you with this.

Tokenization addresses requirement set #3: protecting cardholder data at rest. PCI DSS aims to reduce retention of sensitive data and safely govern its storage and deletion. Tokenization satisfies this requirement by ensuring that sensitive cardholder information just doesn’t reach your systems in the first place. It’s always a good idea to work with a PCI-compliant vendor so that you can improve your payment security. The foremost payment technology companies provide tokenization as a component of their payment processing services, allowing you to focus on growing your business while your payment partner reduces red tape and helps you keep your business in compliance.

5. Enables payment innovations

Tokenization makes payments much easier and safer. From secure in-store point of sale acceptance to payments on the go, all the way from traditional eCommerce to the new slew of in-app payments, tokenization is driving payments with devices and making them safe and secure.

The increasing preference of customers to make in-store payments via their mobile devices is enabled by tokenization. When customers make payments using a mobile wallet like Google Pay, their personal credit card data is stored on their phones as a token. Then there are additional security features coming in from the smartphone like biometric security as well as other advanced authentication measures.

Tokenization is vital for eCommerce. It makes payments safer and improves the customer experience substantially, online, in-app, or on mobile devices.

Data Tokenization v/s Data Encryption: Which is better?

While tokenization switches sensitive information for an irreversible token, data encryption involves using an encryption key to change the data, making it incomprehensible to anyone who does not possess the decryption key.

Tokenization is optimal for structured data, while encryption can even be used for unstructured data.

Because encryption is reversible, the PCI Security Standards Council considers it to be insecure. Since tokens cannot be reversed by breaking an algorithm, they are not subject to this issue.

What is detokenization?

Detokenization refers to the process of exchanging the placeholder (token) for the original sensitive data. No system, other than the original tokenization system can detokenize a token and there is no other way to retrieve the original sensitive data from just the token.

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What are the tokenization use-cases?

There are many situations where tokenization can be used. These include:

1. eCommerce

The One-Click checkout, pioneered by Amazon is done using tokenization. Amazon’s patent on this process has now expired and many eCommerce businesses use one-click checkouts to improve their customer experience.

2. Recurring payments

Tokenization benefits subscription-based businesses greatly. It allows them to save their customers’ payment information for automatic payments while reducing security risks. It helps you create secure and streamlined customer experiences.

3. Mobile wallets

Mobile wallets are continuously growing in use and adoption. They use payment tokenization to protect their customers’ data and simplify transactions.