When handling online payments, there’s an increased threat of cybercrime and data breaches. Data security remains one of the biggest concerns and priorities of businesses globally. Tokenisation can be a smart and efficient solution to mitigate the risk of online payment fraud and safeguard cardholder data.
In this article, we unpack all you need to know about tokenisation in payments, the benefits it can bring to your business, and the difference between this security measure and encryption. Watch our video to find enrich your knowledge about tokenisation.
What is payment tokenisation?
Payment tokenisation describes the process by which sensitive data, such as credit card details, are replaced by a non-sensitive, undecipherable equivalent – i.e., a token.
A token is an identifier that helps to deter payment card fraud by hiding sensitive information behind a specific series of randomised digits, making it inaccessible to unauthorised users. The most popular use of tokenisation is for a customer’s Primary Account Number (PAN).
An instance where a token can be mapped back to their original form is when a customer wants to store their credit card. Even then, however, it’s not possible to retrieve the original data without the reference of the tokenisation system. This suggests that fraudsters can’t decode their value or exploit their meaning (If you want to learn more about how to minimise the thread of fraud, read our article here or watch our video).
When used in conjunction with the appropriate fraud prevention and risk management tools, tokenisation is your best bet when it comes to ensuring privacy and protection (more of this below).
Is tokenisation secure?
Tokenisation alone does not guarantee that hackers won’t access confidential information systems. Rather, it ensures that in the event a network breach occurs in your system, the leaked data wouldn’t be useful to cybercriminals. This is because the token is undecipherable and can only be reverted to its original form under the circumstances explored above.
This suggests that tokenisation can add a layer of security to your customer’s data only if it works in tandem with a robust fraud prevention and risk management strategy.
It should also be noted that all tokenisation systems should be secured and validated applying best practises to audit, storage, data protection, authentication and authorisation, such as the ones falling under the PCI DSS compliance scope.
How does tokenisation relate to PCI compliance?
Tokenisation in itself is a method of safeguarding payment card industry (PCI) data and applies to PCI DSS Requirement 3. This security measure is authorised by the PCI Security Standards Council (SSC) and supports businesses with achieving PCI compliance. This is done by reducing the amount of PAN data a business needs to keep on file. At the same time, it helps cut down on the cost of compliance in line with industry regulations and standards.
Of course, tokenisation doesn’t mean instant compliance and businesses still need to assure the security of their tokenisation processes and the compliance of their payment service providers.
Some of the benefits of tokenisation for PCI compliance include:
- Reducing the scope of PCI DSS by limiting the number of systems that store, process and/or transmit cardholder data. Tokenising PANs and storing the real, readable PAN data could address, to some extent, a level of complexity and expenditure for businesses accepting card payments.
- Protecting customer sensitive information by eliminating stored PANs from as many systems as possible.
- Confirming that security controls are in place through annual validation. Regardless how your business accepts card payment information, you must complete a PCI validation form annually. (If your business outsources the payment processing and cardholder data to a PCI-compliant payments partner, you can lessen the time, effort, and cost of your annual PCI validation procedure).
- Simplifying data security standards by deploying meaningless values or tokens instead of encryption keys to protect data.
Are tokenisation and encryption the same?
No, tokenisation and encryption aren’t one and the same. They’re both protective methods of sensitive data, but they apply different techniques to achieve so.
Encryption taps into mathematical algorithms to convert plain text or data into unintelligible encrypted information. Encryption keys are required to encrypt and decrypt data, and they must be stored and managed accordingly. Such method might be easier to scale for large volumes of data due to the keys being used.
Tokenisation differs from encryption in the sense that data turns into a random string of values – namely, the tokens – which are unrelated to the original data, rather than modified by an algorithm. The relationship between the token and original data is maintained in a token vault (i.e., a database that stores the mapping between tokens and original data. Tokens don’t need keys to safeguard confidential details, and they’re irreversible to their real form without access to the token vault. Such method might be more suitable for smaller data sets, as it requires a token vault to store and retrieve data.
Masking vs tokenisation – What’s the difference?
While exploring the different data security measures available, it’s vital to also draw a distinction between masking and tokenising data. As explained earlier, tokenisation uses a token vault and is mostly to protect data at rest and in motion. This may include payment card data or personally identifiable information.
Instead of relying on a token vault and as the name suggests, masking applies “a mask” to the original data. An example could be replacing characters with asterisks or random values. Masking can be dynamic (i.e., reversible) or static (i.e., permanent), depending on the user’s accessibility level. Typically, masking is leveraged to protect data in use, including that for testing, development, or analytics purposes.
How does tokenisation work?
Normally, payment service providers develop their own secure tokenisation system. Card schemes have started offering what’s known as ‘scheme tokenisation’ or ‘network tokenisation’. While a payment gateway would store the token when a payment card is tokenised, with scheme tokenisation the storing of the token is moved from the payment service provider to the card schemes.
But how does the process of tokenisation actually work?
- When a cardholder visits a checkout page for the first time, they’re given the choice to save their data for future purchases. In instances of instalments or when the customer has agreed on a cycle of recurring or subscription payments, the merchant can get the permission to tokenise the stored card.
- This sensitive data (except for the CVV) is saved in a special token vault database and a unique, randomly generated, irreversible token is assigned to it.
- In future transactions, the merchant and the payment gateway can use the token instead of the sensitive card data to make a payment. Once a card has been tokenised, the returning customer can select the previously used card and enter only the CVV number to confirm the payment.
What are the main advantages of tokenisation for merchants?
For all merchants, but especially ones whose customers tend to make repeat purchases, tokenisation can be a game-changer. Why?
- Boosting conversion rates and reducing bounce rates at checkout.
- Preventing the exposure of sensitive data securely through the use of unreadable tokens. No matter if the customer shops in-store or online, tokenisation safeguards sensitive data at every channel and device. Along with the right security measures in place, tokenisation helps ensure safe and seamless transaction processing – one of the critical drivers of customer satisfaction and confidence.
- Reducing PCI compliance expenses – Storing tokens instead of sensitive data lowers the amount of cardholder data a business needs to save in-house, making it less vulnerable to data compromises. While tokenisation does not rule out the need for a business accepting card payments to remain PCI-compliant, it makes it easier and with less PCI burden.
How emerchantpay can help
As a payment service provider, emerchantpay has generated our own secure tokenisation system which can be easily switched on in your onboarding process. All you need to do is to simply enable tokenisation by ticking the ‘enable tokenisation option’ box on your onboarding forms, and we’ll do the rest for you (This would depend on the level of customisation you opt for in the integration process).
We offer you a range of integration methods for your payment page, including a dedicated Account Manager that will support you with day-to-day queries, even on tokenisation. This way you’ll be better positioned to offer your customers an engaging and secure payment experience, ensuring repeat custom with one-click subsequent payments.
Want to find out more about accepting secure payments? Talk to our payment experts today.