What is Credit Card Tokenization?

Credit card tokenization eliminates sensitive data from a company’s internal systems by substituting it with a randomly unique placeholder known as a token. For example, if a card number were 1234 5678 1234 5678, it might be replaced by something like W67YTE3IJ28Y. This token is then utilized to access, retrieve, and manage the customer’s credit card information, providing enhanced security for both the customer and the business.

Many businesses in the United States are adopting this credit card security measure. Many find it user-friendly, more secure than end-to-end encryption, and cost-effective. But what should you know before deciding if tokenization suits your business?

Defense Against Fraud

The advantage of tokenization is that the randomly generated token has no intrinsic meaning or value. In the past, a breach in a company’s system could furnish cybercriminals with all they need to make fraudulent purchases. However, tokens contain no usable information for criminals and cannot be reverse-engineered, as there is no algorithm to revert the token back. With the rise in fraud, credit card tokenization services offer an excellent way to comply with PCI DSS requirements and protect your customers.

Tokenization vs. Encryption

Both tokenization and encryption are robust methods for combating credit card fraud, but understanding the distinction between them can help determine which is best for your business. While tokenization employs a placeholder for the data, encryption uses an algorithm to scramble the information until it is decrypted. Encryption involves two keys, one public and one private. The public key scrambles the information during transfer or when it is at rest, while the business holds the private key to unscramble and access the data. Without the private key, a criminal has no chance of deciphering the card’s details, although the data remains within the company’s internal network.

Many favor tokenization because it entirely removes a customer’s information from the company’s internal systems. In the event of a breach, criminals will find nothing except useless tokens. This additional layer of security helps avoid liability and enhances customer confidence in their data protection.

Tokenization and Your Business

If your business accepts, transmits, processes, or stores credit card information in a physical store, online, by phone, or by mail, you must adhere to the stringent PCI requirements annually. Maintaining compliance with these standards can be challenging, and no one wants to be held responsible in the event of fraud. By using tokenization, you can be assured that your customer’s information is secure, your transactions are protected, and you are meeting PCI requirements, all at an economical cost. When combined with security measures such as EMV readers and smart cards, the risk of credit card fraud is significantly minimized.