What Is Credit Card Tokenization?

Does your business accept credit cards? If so, then you need to know how to protect sensitive credit card information with payment card tokenization.

Without proper data security, your business may fall victim to credit card fraud. In fact, the US Federal Trade Commission reports that 40% of all financial fraud is related to credit cards. This information loss costs businesses over $3 million each year.

Fortunately, tokenization technology exists to help combat credit card fraud, protect customer data, and vastly improve business security.

credit card tokenization

What is Tokenization and How Does It Work?

Data tokenization utilizes advanced payment software to secure sensitive credit card data. Tokenization takes credit card information and substitutes it with a unique token that only the proper tokenization system can decipher.

Most credit cards come with a 16-digit account number. When a customer swipes a credit card, a random number, or token, automatically replaces the account number. For example, 1234-5678-9012-1234 is tokenized to become 5gh%#sDf8*kL2%fH. Businesses will never see the original credit card number. Instead, only the tokenized data is visible in the payment system.

Completely different from the original credit card information, tokenized data acts as the key for all future transactions. Businesses can use this unique token to store customer records. Only the payment processor can decipher the token. Even if a hacker gains access to this data, the information would make no sense.

credit card tokenization

The Evolution of Tokenization

In the past, businesses used a process called encryption to secure data. Encryption simply rearranges data when a card is processed. Then, the system de-encrypts the data back to its original form upon payment authorization. This decoded information is then transmitted to the business.

Encryption only masks the original data and continues to store it on the server. If a hacker obtains the decryption key, they will gain complete access to all credit card information.

In 2005, Shift4 Corporation developed tokenization technology as a more advanced way to secure sensitive payment card data. Unlike encryption, tokenization completely removes the credit card information from your network. Future transactions are completed with a token instead of the original data.

An increasing number of businesses are adopting tokenization because it offers better security and cost-effectiveness than encryption and other security methods.

Why is Tokenization Important for Data Security?

The average cost of a data breach is $4 million, according to IBM Security. Each lost or stolen record costs businesses approximately $158.

While the possibility of credit card fraud remains, data tokenization helps keep credit card information as safe as possible. Businesses can safeguard against fraudulent activity by utilizing payment gateways that implement tokenization security.

Additionally, tokenized data is never stored on your system. Many processors store data off-site in a secure, cloud-based server to eliminate security risks and liabilities.

Tokenization benefits more than just the customer. As a business owner, you can maintain PCI compliance by not storing sensitive credit card data within your system. You can also use tokenization technology to secure business passwords, email addresses, employee files, and customer accounts.

Protect Your Sensitive Business Data

Tokenization is a growing technology that can save businesses millions of dollars in fraud liability while shielding consumers from the hassle of dealing with data theft.

In the future, data tokenization will be essential in the world of credit card security. Businesses can benefit greatly from taking advantage of payment card tokenization now.