What Is Tokenisation?

By BankBazaar | April 27, 2017

What Is Tokenisation?

While hacking and online theft of identity are at one extreme end of the online security spectrum, encryption of data and tokenisation are firmly at the other end. You must have heard enough about data encryption, but have you heard of tokenisation?

Companies and businesses as well as banks and other financial institutions, which deal with customer financial data, have to take necessary steps to safeguard the personal details of their clients. The safety procedures that banks and other institutions set in place must meet the stringent guidelines set down by the PCI (Payment Card Industry). This is where tokenisation comes into play.

Additional Reading: Safe Credit Card Practices You Should Be Following

Tokenisation, which is steadily gaining popularity with businesses, is a way of securing and protecting customer details against unauthorised access. Tokenisation is the process through which crucial details are converted into alternative information to safeguard it from hackers and crooks.

So, why is tokenisation popular?

The reason tokenisation is gaining traction is because the alternative information that is generated to denote the original details can only be deciphered using a key. This key, in turn, is only available through the original security system. Additionally, the number or code generated is completely unrelated to the original data.

For instance, if a Credit Card number like 5674 7805 7643 9812 is fed into a system by the customer while making an online payment, then through the process of tokenisation the number would randomly be converted into a code like HGJ8ESNKOA45J9R, which would hold no direct reference or similarity with the original Credit Card details.

So, while the token in itself is important, without the unique parent program it is rendered completely useless. This in turn makes it absolutely futile for online criminals to glean any valuable information from the token as a standalone element.

The benefits of using tokenisation above other processes like encryption are manifold. Through the method of tokenisation, sensitive information such as Credit Card details can be converted into a code which is completely random and has no real association with the original details.

The original number is present in an offsite location or a cloud security vault instead of the company’s own database or system. Therefore, the token which is generated is only a way for the system to associate with the original card number, making it impossible for hackers to steal information.

Even if the tokens are copied and hacked, the hacker will not be able to extract any useful information from it because without the original key a token is an absolutely useless collection of letters and numerals. The key which deciphers and retrieves the data for final payment conduction is part of the program used for tokenisation of information.

Additional Reading: Credit Card Myths You Should Be Careful About!

Encryption, on the other hand, continues to store the original information in the company’s system and keeps the association between the token and the original number intact, even though it creates a serial number meant to replace the original details.

If hackers break through the system security and steal the encryptions, they can retrieve the original information by decrypting the encrypted numbers.

The numbers can be decrypted with false programming or by stealing the key from the system. To stress the point further, de-tokenisation happens only when the system which had generated the token in the first place breaks it down.

The tokens which are generated on the merchant system can either be used as a one-time code, for instance when a customer uses his or her Debit Card or Credit Card to make a payment, or as a permanent number when a recurring customer holding a card makes periodic payments or purchases with the company. Tokenisation is also easier, safer, and cheaper than the whole process and program of encryption techniques.

Additional Reading: When Not To Use A Credit Card

Why is it beneficial for businesses to use Tokenisation?

Tokenisation does away with the process where the original details of a customer or PAN (Primary Account Number) is stored in the company system and replaces it with a randomly serialised code which replaces the details with something which can only be utilised when it is de-tokenized by the same system which converted it.

The information is safely locked away in a cloud vault, which is a separate entity from the merchant’s own database, making it hack-proof and secure. When the transfer motion is completed then the original system de-tokenises the code and sends the original PAN (Primary Account Number) for payment processing.

The fact that crucial information is retained at an offsite location, and not on the company database, keeps hackers and notorious criminals at bay. It is important to remember that the system of tokenisation is not a security system which protects the database against hackers and malware.

It provides the additional security of safeguarding that information if the company system is breached after the security wall fails to protect the information. You can use excellent security software to protect against such breaches, but even the best cannot assure absolute system protection.

The organisations and companies which conduct business through online payments, in any proportion, have to certify their IT systems by meeting all the requirements set by the Payment Card Industry Card Data Security Standard (PCI DSS).

Additional Reading: Is Your Credit Card A Match Made In Heaven?

Where does the original date go when a token is generated?

The process where the PAN details are stripped and locked away in a cloud space while using a phone to transfer money is also known as Host Card Emulation (HCE). It is quite the rage these days as leading card agencies are putting more focus on this process. It creates an alternative, which allows them to avoid saving crucial details on the server and transfer it to a cloud storage instead.

The most amazing feature behind this process is that it is hassle-free and neither the customers nor the merchant website face any trouble. The overall experience is not affected and the transaction process remains as smooth as ever.

The use of tokenisation to combat online theft and fraud is becoming popular for the right reasons. The idea of denoting a value while converting the original detail into a random serialisation, which is of no consequence to hackers, is a great way of not only protecting customer trust and funds, but also maintaining an excellent image of the company in the market.

Additionally, a good user experience combined with an excellent method to maintain security is something which is sure to make a positive impact on the online transaction business industry.

Additional Reading: Safe Credit Card Practices You Should Be Following

If you were hesitating to get a Credit Card for security concerns, then the information presented above should let you know that your data will be well protected. How about applying for a Credit Card now?

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Category: Money Management Technology

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