Cyber attacks, credit card frauds, system hacks — all of these problems are challenging for modern businesses, especially when it comes to companies that accept payments, or are part of an IT array. Accidents with data leakage or system vulnerabilities may significantly decrease a business’s reputation among customers and cause penalties from regulators. Thus, to protect sensitive data and business from fraud there are various technologies, and one of the most popular is tokenization.
What is the Idea of Tokenization
Briefly, tokenization means data replacement, when we change original data with non-sensitive units, also known as tokens. Generally, the type of information we can replace with tokens includes credit card payment information (like numbers, cardholder name, CVV, expiration dates), social security numbers, PII, and many more.
With the tokenization platform integration, all of the sensitive data becomes well protected. As each part of the original data is replaced with randomly generated tokens, which do not contain any meaningful information, meanwhile, sensitive data is securely stored in the vault.
One of the key tokens features is that these units are used only within internal systems, such as POS-terminal and payment gateway, and have no value outside.
For better understanding, when we have credit card numbers like 2343-1243-2445-2453, once tokenized we may get tokens such as KN8494K%w!, or ****-****-****-2453, depending on the type of tokenization.
These tokens can be processed only in the payment gateway to provide transactions, as a gateway can read the token and link it with original sensitive data, which is stored in a vault. Thus, even if thieves get access to the token, they cannot use it, as it has no real value and represents only random characters.
Also, with tokenization merchants can securely store tokens in their payment environments, which makes transactions way easier for the customers, as tokens can be used many times, and are a great option when it comes to recurring payments or subscription services. Another benefit the merchant gets is that they can use tokens for tracking and analytics, which may help the business provide better service.
Payments with Tokens
Once we consider the main things about tokenization as technology, let’s look closer at the process. So how does tokenization work?
Tokenization is used to minimize the risk of fraud during payments and confidential customer data storing.
All the process to proceed with payment with a token goes step by step:
First step. To make a payment, customers need to enter their card data. They can do it via POS-terminal, in-app purchase, or on the merchant’s website. Once the data is entered it is replaced with a token, which is often generated by the payment gateway. Worth noting, that the information the customer has entered is also encrypted before passing through networks.
Second step. While customers get a token, their original data is sent to the protected vault. To make a purchase, the gateway maps a token with sensitive data in storage and then processes the transaction.
Third step. The customer payment information is encrypted one more time before sending details to the bank and networks for authorization.
Fourth step. Once verification is successfully complete, transaction confirmation is sent across all the networks and involved parties to make a purchase.
With the growing popularity of online payments, we may often hear about different technologies to protect both the company and the customer.
For this purpose, some of the most commonly used is tokenization and encryption. As data security may look like something complex for those who are new to that field, technologies like tokenization and encryption can be misunderstood or considered as something the same. There are some similar features, but the main things are the ways each technology provides its security. It is worth noting that companies may use each of these technologies separately, but also these can be combined as well.
To understand the difference we should pay attention to the methods behind both.
First of all, for encryption we use algorithms. With mathematical cipher the original text information or data changes a lot and becomes confusing, thus no one can read it anymore and get any meaningful information. Once encrypted, data can be passed through networks without any risks. But, problems may occur when those who get the algorithm or key can spend some time and finally reveal original information and then use it.
On the other hand, tokenization works differently, thus avoiding such risks, as here we get tokens. These units are generated randomly and don’t have a value. Their purpose is to replace input information, not change it. By this, tokens only represent data and do not expose it to anyone. So, even if hacked, criminals can’t use it in any way.
The thing we should take into account is that while tokens are used for transactions only, the original information behind them is kept in the vault. And here we can mix both technologies:
• Tokenization for payments, by substituting all the confidential elements of the data
• Encryption for storing and transmitting information through networks
Benefits You Can Get
Higher level of protection of the data. As tokens replace it and do not reveal, none of the customer’s confidential elements would be exposed to hackers. The reason behind that is that tokens have value only in the gateway, and are useless outside.
More convenient service. By allowing recurring transactions without needing to enter the data each time, customers can comfortably purchase online and make orders in a few clicks.
Regulatory policy. As original confidential information is securely stored, it helps to reduce the cost to meet PCI standards.
Universality. Tokens can be used not only for payments but also have a wider implementation. Thus, you can try tokenization to defend different types of private information. For example, it can be implemented for safe storing such info as passwords, addresses, logins, user files, accounts, etc.
Trading. With the high security you get by tokenization, it becomes way easier to trade globally, as each country may have its security policy, and tokens help to meet most of them.