Tokenization is the process of protecting sensitive data by replacing it with an unreadable token. Credit card tokenization is a specific type of tokenization that is used to protect credit card information. Credit card tokens are randomly generated numbers that represent credit card information. Credit card tokenization protects credit card information by replacing it with a random number that cannot be used to make credit card transactions.
Tokenization is implemented using a token vault or tokenization server that provides the mapping of sensitive data (i.e., credit card numbers) to unique tokens. Here is an example of how this works:
When the point-of-sale application attempts to process a transaction, instead of providing the actual credit card number, the point-of-sale application provides the token from the token vault with a key that maps back to the real credit card number.
How does it work?
Tokenization works by taking a piece of data and applying a mathematical function to it in order to create another piece of data known as a token. Tokens are generally randomly generated numbers that are used to represent the original data. This randomization makes it difficult, if not impossible, for someone to decipher the token and use it to access the underlying data.
Tokenization is often used to protect sensitive data such as credit card information. When credit card information is tokenized, the actual credit card number is replaced with a random number. This means that if someone gets their hands on the token, they cannot use it to make any transactions. The only way to access the credit card information is by using the key that maps the token back to the original credit card number.
Tokenization can be implemented in a number of ways, but is most commonly done using a token vault or tokenization server. A token vault is a secure storage area where tokens are stored. A tokenization server is a computer system that is used to generate and manage tokens. The tokenization server is also responsible for mapping tokens back to the original data.
There are a number of benefits to using credit card tokenization including:
- Reduces the risk of data breaches
Tokenizing credit card numbers means that if someone gets their hands on tokens, they cannot use them to make any transactions. This reduces the risk of fraudulent credit card transactions.
- Improves PCI compliance by reducing cardholder data storage
Tokenized credit cards are not stored as actual credit card numbers, but rather as tokens. This reduces the amount of cardholder data that needs to be stored and therefore improves PCI compliance.
- Eliminates the need for merchants to store sensitive credit card information
Since merchants no longer need to store credit card numbers, they no longer need to worry about the security of this information.
- Reduces PCI scope
The Payment Card Industry Data Security Standard (PCI DSS) is a set of requirements for any merchant or organization that stores, processes or transmits credit card data. One of the requirements of the PCI DSS is to limit access to credit card numbers and personally identifiable information (PII). Tokenization reduces the scope of merchants that are required to comply with the PCI DSS because they no longer need to store any credit card numbers.
- Protects against data loss in the event of a disaster
Tokenization can also be combined with encryption in order to protect tokens from being accessed in the event of a security breach, therefore helping to protect sensitive data in case of a disaster.