Tokenization and encryption are terms that most of us have heard, but few of us understand. Much like 4G or how planes actually stay in the air, most people simply don’t know how data security works. While digging into the nuances of these technologies is not necessary for business owners and operators, a baseline understanding certainly can’t hurt. With this in mind, today we will be reviewing tokenization and encryption for credit card payments and answer a few commonly asked questions about electronic payment processing.
Credit Card Payment Tokenization 101
Tokenization, much like encryption, is a method of securing data for electronic payments. Tokenization “is the process of protecting sensitive data by replacing it with an algorithmically generated number called a token.” This allows for information including bank details, credit card information, and customer information to remain safe during transactions. The tokens which are created in the tokenization process are used to complete the digital handshake while the underlying information is held in a digital vault.
One of the many strengths of tokenization is that the technology can be used for nearly all types of electronic transfers. This might include common purchase methods such as credit card and debit card transactions or more complex transactions such as recurring payments, chargebacks, or customer refunds. The flexibility of tokenization is thanks to the creation of stand-in tokens which can represent almost any type of data during a transaction.
Tokenization for Payment Data Security
Payment processing encryption achieves many of the same goals as tokenization through a slightly different method. Rather than creating a token, encryption instead uses “keys” which are encrypted and decrypted to keep sensitive customer information safe from prying eyes. Once a transaction is initiated, the relevant customer data is immediately encrypted (think scrambled) by an automated algorithm. The recipient of this information will receive the encrypted data which can only be accessed with the corresponding key.
The process of encryption makes data breaches virtually impossible without access to the encryption key. The bank or other recipients of this encrypted data can then decrypt the sensitive information with said key. Any nefarious party looking to intercept this data would need not only access to the encrypted information but also access to the corresponding encryption key(s).
Tokenization vs. Encryption for Credit Card Payments
Here are some other ways to understand the differences and similarities between data encryption and tokenization:
Method of data scrambling differs: the primary difference between tokenization and encryption is how sensitive information is protected. Encryption creates a ciphertext with the use of an encryption algorithm. Tokenization creates a random token that can be used to unlock data. Encryption is mathematically reversible (based on the aforementioned algorithm) while tokenization is not.
Encryption can be used for any data while tokenization is best for structured data: encryption can be used to protect virtually any data from names to social security numbers to addresses. Tokenization is primarily useful for data that has a set structure such as credit card numbers and social security numbers.
Tokenization and encryption handle data transmission differently: last but not least, tokenization is unique in that the sensitive information never leaves the originator. Instead, it is deciphered through the use of a token. Encryption does send the original data during the transaction under the protection of encryption keys.
Electronic Payment Processing Security FAQs
Is Swiping a Credit Card as Secure as Using a Chip?
To put it simply: no. EMV (chip) card payments are inherently more secure than swiping a credit or debit card. This is primarily due to the fact that traditional credit and debit cards use a magnetic strip to store data in a static fashion. This allows fraudsters and criminals to copy magnetic strip information to be used at any time in the future. EMV chip cards use encryption and alter the data sent for each individual transfer — creating a significantly more secure transaction for customers and businesses alike.
Do I Need Specific Equipment for Encrypted or Tokenized Electronic Payments?
This is a yes and a no. There are certain hardware and software requirements to utilize secure payment methods. It is also important to understand that most modern products will allow for secure payment processing methods. The key is to work with a reputable Merchant Service Provider to make sure that you have the necessary tools to process secure payments.
True Merchant Offers CardSecure for Payment Security
Whether you are a brick and mortar retail operation or an exclusive e-commerce shop, True Merchant has your payment processing security needs covered! We are proud to offer a full suite of merchant services for businesses of all sizes including CardSecure for transaction security, ERP solutions, and payment processing of virtually all kinds.
With True Merchant, your small business will get the cutting edge technological backing it needs with the touch of a dedicated customer service team. Unlike larger companies, we take the time to work with our clients and deliver the services they need most.
To learn more about how we can help your small business grow, please call or email a member of our qualified merchant services team today!