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Tokenization vs. Encryption

Security lock over data showing encryptionBasic data security has always been important, but with our increasingly digitized lives, we’re all creating, storing, sending, and receiving more information than ever before. This, in turn, makes it easier for our data to get hacked or intercepted.

Fortunately, there are many ways to safeguard sensitive data, with two of the leading methods being tokenization and encryption.

Because both of these technologies can help prevent unauthorized access, they’re often used interchangeably — particularly within the payments industry. Yet, how they function is very different. As a business owner, it’s important to understand the relative benefits of tokenization vs. encryption. Doing so will allow you to choose the most appropriate data security method for your unique payment requirements.

How Does Data Encryption Work?

This data security approach involves using an “encryption” key to safely encode sensitive information. Usually, this key is a mathematical cryptographic algorithm. Once encoded, the original information becomes unreadable to anyone who doesn’t have direct access to the key.

Data encryption is fairly reliable in most situations. There’s no limit to how complex the cryptographic algorithms can become. Though because the algorithms themselves don’t change, those who use encryption must take extra steps to safeguard the master key. That’s because, if it falls into the wrong hands, malicious actors can reverse-engineer the encoded message.

In fact, a thief can technically decode every piece of data that uses the master key. It’s not simply Customer X’s payment information that becomes compromised. All of your customers’ credit card data is at risk if someone gains access to the algorithm.

Download the Tokenization Infographic 

How Does Data Tokenization Work?

Tokenization also protects data, but it uses a non-mathematical approach. Instead of “encoding” information that can potentially be reverse-engineered, tokenization works by substituting sensitive data with single-use or multi-use, non-specific IDs (also known as “tokens”).

These randomly generated tokens share no clear relationship with the original data. For example, it’s possible to tokenize a 16-digit card number and end up with an eight-character alphanumeric ID such as 6GhA54tB.

There’s no way to mathematically decipher the original 16-digit card number. Only your payment processor has direct access to the secure vault in which the token and corresponding card number are stored. Thus, only your payment processor is able to match the two values.

The token is useless to everyone else — including you, your employees, and criminals.

Tokenization vs. Encryption: Which Is Better?

Both of these data security technologies come with advantages (and limitations).

Encryption, for example, is easier to set up, older and more familiar. Still, relying on a single master key for all of your customers’ payment data carries certain risks. This is especially true if you have to share information across many accounting, sales, or CRM tools — each of which needs to store that master key in order to access and use each customer’s payment data internally.

For this reason, encryption is best suited for transmitting data externally — especially when sending sensitive information across unsecured Wi-Fi or cellular networks.

By contrast, tokenization is more secure — provided that the token vault is properly safeguarded. This data security method also has the advantage of protecting payment information sent (internally) between your accounting and sales tools. Instead of storing a 16-digit card number, you would instead use the token ID (e.g., 6GhA54tB) for all of your recordkeeping.

Tokens cannot be used by others, so in the event a token is stolen, it will not be usable outside of your organization. With no sensitive data stored in your payment environment, there’s nothing for thieves to steal.  As such, tokenization can help reduce your PCI scope — making it easier to pass your annual PCI compliance assessments.

Which Does BluePay Choose: Tokenization vs. Encryption?

Tokenization and encryption can be used simultaneously, which means that you don’t have to choose between one or the other. In fact, we offer both data security options:

  • Tokenization to substitute payment information with one-time IDs.

Combining both of these options offers the ultimate protection.

If you’d like to learn more about our approach to PCI-compliant payment security, schedule a free consultation today.

Get a free consultation today!

Topics: PCI Compliance and Fraud Prevention

Welcome to the BluePay Blog!

Whether you're a small business, an enterprise corporation, a financial institution, or a software partner, we have created a series of blog posts to help you and your customers, learn more about the complex nature of payments. Take a look to learn how payments can help to simplify your business operation, and may even help to grow your revenue.

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