Given how fast things are moving digitally, securing sensitive data is an absolute necessity. With the exponential amount of data transferred globally every second, data security remains a paramount concern. To address this need, various data protection methods, such as tokenization and encryption, have emerged. Both methods strive to protect sensitive data, but they operate differently and have their distinct use cases. In the realm of payments, notably the data within scope for a merchant to be PCI compliant, tokenization is a critical path to minimizing compliance burden and reducing the costs associated with managing sensitive data.
Encryption, a globally recognized data protection method, converts plain text into unreadable cipher text using a specific algorithm and encryption key. The deciphering of the data is possible only with the appropriate decryption key. Despite its widespread use, encryption has its limitations, particularly in terms of key management and speed, making it less suitable for certain applications.
How Encryption Works
In encryption, 'plain text' is converted into 'cipher text' using a complex algorithm and encryption key. The cipher text can only be decoded into plain text using a matching decryption key. Although this method has received considerable attention in cryptographic research, the security of encrypted data hinges on robust key management. Any compromise in key security could potentially jeopardize the data.
Do you want to improve your data security? Our team at Spreedly has a deep expertise in payments security and we're ready to help with implementing tokenization solutions into your systems for superior security. Get in touch.
Tokenization is the increasingly favored data protection method within financial and payment systems, with a projected volume of 1 trillion transactions in 2026 according to Juniper Research. Payment tokenization substitutes sensitive data with non-sensitive 'tokens' that have no intrinsic value. The original sensitive data is securely stored in a separate database, often referred to as a token vault, while the tokens are used throughout different systems and applications.
How Tokenization Works
The process of tokenization involves the following steps:
- Replacing sensitive data with non-sensitive tokens
- Ensuring these tokens hold no intrinsic value
- Storing the original data securely in a 'token vault'
- Using tokens to substitute for sensitive data in systems and applications
Underpinned by standards like the Payment Card Industry Data Security Standard (PCI DSS), tokenization has become a trusted method for data protection. It enhances security by mitigating the need for key management and reducing the risk of data breaches.
Tokenization vs Encryption: Spotting the Differences
While both tokenization and encryption aim to protect data, the distinct advantages of tokenization often give it an edge. Understanding these differences is crucial when deciding which method to employ.
Unlike encryption, which yields identical output when the same data is encrypted with the same key, tokenization creates a unique token for each instance of data, even if the data is identical. This feature reduces the risk of pattern recognition in the data, providing an additional layer of security.
- Encryption: Same data + same key = same encrypted output
- Tokenization: Same data = unique token
Tokenization's effectiveness doesn't rely on key management. Since tokens can't be reverse-engineered to reveal sensitive data, there's no need for key management, removing a potential point of vulnerability inherent in encryption.
Data Format Preservation
Tokenization can preserve the format of the original data. For example, a 16-digit credit card number can be replaced with a 16-digit token, allowing easy integration into existing payment systems. Encrypted data, on the other hand, often varies substantially from the original data format, requiring complex system modifications to accommodate the encrypted format.
With the growth of credit cards in e-commerce transactions card networks such as Visa and Mastercard now offer Network Tokenization (NT) services that replace raw card numbers (FPAN) with merchant-specific tokens. Like regular credit card numbers, these Network Tokens (also called DPAN) are a 16 digit value that can be used for completing e-commerce transactions.
Network tokens offer a wide range of benefits for the merchant and consumers:
- Network tokens are issued in partnership with issuing banks. As a result network token transactions have a higher authorization rate when compared to payment made without network tokens.
- Customers have a better experience as network tokens receive proactive updates from the card networks. Merchants can also choose to leverage detailed card art provided with the network token.
- Network token payments have increased security as they are merchant-specific and each transaction is protected with a one time use cryptogram. As a result, instances of fraud decline with network token use.
Tokenization is typically used for data-at-rest scenarios due to its independence from key management. On the other hand, encryption, despite its potential risks associated with key management, is often employed for data-in-transit scenarios. For instance, in a payment processing system, credit card numbers stored in a database can be replaced with tokens, thereby significantly reducing the risk of data breaches.
Is Tokenization the Superior Choice?
The choice between encryption and tokenization depends largely on the specific requirements of your application. However, due to its robustness and fewer points of vulnerability, tokenization often stands out as the superior choice. Here are some considerations:
- Do you store sensitive data for extended periods? Tokenization provides the enhanced security required.
- Are you concerned about the risk of key management? Tokenization's keyless nature is more suitable.
- How is data transmitted between your servers and your service providers? How do your service providers prefer to receive sensitive data? Do they reward you with lower fees with use of network tokens?
Remember, the decision is not about which method is better in general, but which is better for your specific application. In many cases, tokenization takes the lead.
As payment security threats continue to evolve, so must our strategies and methodologies for data protection. Both encryption and tokenization are vital tools for protecting sensitive data, but the unique characteristics and strengths of tokenization often make it a more secure and robust choice. Furthermore, the innovation and momentum being driven by the card networks and fintech service providers demonstrates that tokenization will increasingly be adapted to optimize payment flows and reduce the friction of managing payment data.
Looking for more information? Learn how Spreedly can improve authorization rates and customer experience with secure network tokenization offered as part of our Advanced Vault solution. Learn more here.