What is Tokenization? All You Need To Know

Introduction 

Traditionally when a card or mobile payment made the card number pass through various points of the authentication process, it increased the risk of fraud because data can be intercepted at multiple points to counter this concept tokenization has been introduced.

This stores the original card number in a secure token and substitutes it with a unique tokenize number. Because of the limited validity, this number is useless when intercepted. But with tokenization, reduced the risk of fraud significantly.

The payments industry is continuously growing to support a new form of payment mode that requires quick protection against account misuse, counterfeit, and other types of frauds. Thus security is required for the card-holder when he makes the payment to the merchant. To minimize unauthorized use of account data and prevent cross-channel fraud, Tokenization is introduced.

1. How Data Tokenization Works
2. Payment Tokenization Example
3. Tokenization Vs. Encryption
4. Benefit of Tokenization

1. How Data Tokenization Works

Tokenization is the process of substituting crucial data, such as a  credit or debit card’s number, with a token that will be issued by a bank. The original value of the card is stored in a protected data warehouse. The purpose of tokenization is to reduce or eliminate the risk of loss of customer data and to avoid the expensive process, loss reimbursement, and legal action.

There is no change in the way of payment for a customer, whether it is made either in-store or online. However, the merchant will not be able to store the customer’s original debit or credit card number as a randomly generated token ID issued In place of the actual card number by the customer’s bank, which will be utilized. Furthermore, the 16-digit token which masks the customer’s actual card number will be dynamic in nature. Due to tokens’ random assignation, it’s almost impossible for intruders to break it or decrypt the token.

2. Payment Tokenization Example

Let’s understand in simple language If a person wants to purchase a mobile from an online website, first of all, he has to give card details to the website of merchant and OTP is generated this is for authentication purpose. But for simplicity, online websites save card details. But the threat is that if a hacker hacks such a website, so it’s dangerous for customers. Hackers will target customers to prevent data theft Tokenization introduce.

Tokenization will replace card details with a code called a token. Instead of card details, the token will be used as a card at the point of sale. The goal of the process is to improve the safety and security of payment.

3. Tokenization Vs. Encryption

Encryption is the process of Encoding messages or(information) in such a way that hackers cannot read it, but only authorized parties can. Decryption is defined as the recovery of the original message from the encrypted data.

Plaintext – It is the message that is to be encrypted. It is transformed by a key function.

CipherText – It is the output of the encryption process transmitted often by a messenger or radio.

Encryption Model – The intruder accurately hears and copies the complete ciphertext. However,  the recipient cannot easily decrypt the complete ciphertext because he does not know the decryption key. Sometimes, the intruder can listen to the communication between the sender and receiver and record messages and play them back later,  add his own messages, or modify messages before they get to the receiver. The art of breaking ciphertext is known as Cryptanalysis, and the art of devising them is known as Cryptography. Both Cryptanalysis and Cryptography are collectively known as Cryptology.

The most significant difference between encryption and tokenization is in encryption Encrypted information can be retransmitted to its original form at any point.

Tokenization provides much better protection when it’s come to payments where the card is not available. Encryption is one of the strongest card data protection methods for transactions where the card is physically present.

4. Benefit of Tokenization

• Credit, debit card tokenization boosts payment security. Tokenization is the secure way to protect customers’ payment information from internal problems and outside digital hackers.
• Addresses, password secret files, and customer accounts can also be protected using tokenization technology.
• Many businesses that collect and store sensitive data on their networks find that it’s very hard to comply with standards, which are called PCI DSS standards. The PCI Council charges a fine if the data breach happens due to a lack of PCI compliance.
• Tokenization makes it possible for merchants to comply with PCI DSS with minimum liabilities and security expenses.
• Reduced risk – If any business is holding customer financial data and suffers a data breach, then such business is found responsible for data loss.
• Tokenization ensures the correct formatting and transmission of data, which is protected from cyberattacks. It is practically impossible to read the token by anyone except for the payment processor. You ensure both external and internal protection, including employees or other people connected to your business.
• Tokenization reduces the risk for a data breach significantly, which has a good sign for the cost reduction.
• Sensitive customers data stay within the bank control at all time. Online merchants have no access to the real customer’s data. The cardholder will enter their card details only once, which are then converted into a token.
• Reduction of data exposure: A key advantage of tokenization is that it requires data consolidation. Sensitive data are only stored on the tokenization server(s), whereas they are encrypted and highly protected. This reduces the risk of data exposure.
• PCI Tokenization: Easing Compliance with Tokenization Back in 2004, Visa, Mastercard, American express came together and established a set of rules that all merchants must abide by to accept their payment card these rules are known as the PCI DSS standards. The Payment Card Industry Data Security Standard (PCI DSS) ensures PAN data is protected by all organizations that accept, transmit, or store cardholder data. Failure to comply may result in fines and loss of brand authority. Tokenization helps companies achieve PCI DSS compliance by reducing the amount of PAN data stored in-house. Instead of storing sensitive cardholder data, the organization only handles tokens, making for a smaller data footprint. Less sensitive data translates into fewer compliance requirements to comply with, which may lead to faster audits.

Conclusion

It can be concluded that tokenization is a reliable data protection method while operating any financial transactions ensuring the reduced risk of fraud and data breaching.

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• Data Anonymization: A Simple Guide (2021)