As a business, you need customer payments to stay afloat. However, each payment that passes through your system creates an added risk. If the customer’s financial data is stolen or unintentionally exposed, it can lead to regulatory issues, financial repercussions, dissatisfied customers, and a negative impact on your brand.
One way to mitigate these risks is through credit card tokenization. By converting primary account numbers into a token, you can avoid transmitting, storing, and processing sensitive information.
To learn more about how card tokenization impacts PCI scope and security vulnerabilities at your business, read on.
TL;DR
- With credit card tokenization, the primary account number (PAN) is replaced with a token.
- The token is stored in a vault where it can be used as needed.
- Tokens can be single-use tokens or reusable tokens, depending on the type of transaction.
- While online, in-app, subscription, and card-on-file transactions vary slightly, the general tokenization process remains mostly the same.
- Unlike encryption, tokenization is an effective way to reduce the PCI scope. By removing PANs, you limit the amount of data that PCI compliance applies to.
- However, PCI obligations don’t simply vanish. Instead, they are concentrated in the vault, which is where the PANs are held. The payment gateway or payment processor is responsible for protecting data that is in the vault.
- Tokenization works alongside vaulting to protect card tokens. In comparison, encryption involves using a cipher to encrypt the data.
With encryption, PCI regulations remain in effect because the data is still present. In comparison, tokens aren’t directly related to the data in the PAN, so PCI compliance doesn’t apply to the token. It does, however, apply to the data that is stored in the vault.
What Is Credit Card Tokenization?
Credit card tokenization is when a card’s primary account number (PAN) is replaced with a token. This token is a non-sensitive identifier that is used in place of the actual card number, providing an added layer of protection. The concept is similar to the way you might use chips at a casino in lieu of actual money or ride tickets at the state fair.
The goal of tokenization is to provide better security for the card data. Each time that card information is transferred, it places the data at risk. By replacing this data with a token, you can protect your customers’ information and support your payment card industry data security standard (PCI DSS) measures.
With tokenization, the real card data is placed in a credit card vault. This vault is typically run by your payment gateway or payment processor.
When you process payments, you’re exchanging the token instead of the PAN. You charge the card, and the token is sent to the provider. Then, the PAN is looked up in the vault.
How Does Tokenization Impact Your PCI DSS Requirements?
Payment tokenization is an effective tool for reducing your PCI DSS requirements. As soon as the PAN is tokenized, the scope of your requirements is decreased. PCI DSS measures apply to cardholder data. If there isn’t any cardholder data to protect, the PCI scope is significantly limited.
However, it should be noted that this doesn’t make PCI DSS rules disappear entirely. The same rules still apply, but now they are used in a concentrated form on the vault. The payment provider responsible for keeping the vault secured now bears the brunt of the compliance requirements instead of you. Additionally, if you process, store, or transmit non-tokenized cardholder data, the non-tokenized data is still subject to PCI DSS protections.
How Does Credit Card Tokenization Replace Sensitive Card Data?
While the basic PCI tokenization process is the same, it can look slightly different based on how the payment is processed. In general, the card tokenization process begins when the customer enters their card data into your checkout page. Then, these details are sent directly to the payment gateway.
The payment gateway turns the data into a unique token and stores the data in its vault. Once you receive the token, your backend processes store it for processing future payments.
To gain a better understanding of this security measure, let’s look at how this process looks with different transactions.
Online
With online checkout, your checkout page and the web browser collect the data. Typically, a single-use token is sent back from the payment gateway. Then, you send this token to your server to finish processing the payment.
In-app
With an in-app purchase, the mobile software development kit (SDK) is responsible for capturing the data and creating a token. Afterward, your server receives the token for completing the payment.
Card-on-file
Card-on-file tokenization works similarly to the online tokenization option. The major difference is that a reusable token is created after the customer enters the payment information. Because of this, the customer doesn’t have to re-enter their payment information to process future transactions.
Subscriptions
With subscriptions, a reusable token is made when the customer signs up for the subscription. Each time the subscription payment is due, this token is charged again. The provider and vault flag the token for recurring payments and monitor when card updates need to be made.
What’s the Difference Between Tokenization, Encryption, and Vaulting?
There are a few major differences between tokenization, vaulting, and encryption. Card tokenization and vaulting are two sides of the same coin. While tokenization is the process of turning card data into a token, vaults are where the PAN is actually stored.
Encryption is an entirely different process where a key or cipher converts card data into an encrypted form. Because the encrypted data is based on the real data, PCI DSS requirements remain in effect. In comparison, tokenization replaces the PAN with a completely random token. As a result, payment tokenization reduces the PCI scope for your business.
| Tokenization | Encryption | Vaulting | |
| Purpose | It replaces sensitive data with a non-sensitive token. | It protects sensitive data by using a key to make it unreadable. | Vaulting is where and how tokenized data is stored. |
| Where Data Is Stored | Your system only stores the tokens. The payment gateway is responsible for storing the sensitive data that corresponds with each token. | Data is stored in databases, logs, or other locations. | The dedicated vault is where tokenized data is stored, so only the token or a vault ID is retrieved. |
| Impact on PCI | This significantly reduces your PCI scope because anything that is tokenized is removed from the scope. | It generally doesn’t reduce the scope of PCI DSS compliance you need to do because systems are still transmitting, storing, and processing the encrypted PANs. | This method reduces PCI scope in the same way that tokenization does. However, it’s important to note that the vault is still subject to PCI DSS compliance. |
| Can You Get the Primary Account Number Back? | Yes, if you look it up in the token vault. Otherwise, you can’t because the token isn’t derived from the account number. | Yes, if you have the encryption key or cipher. | Yes, if you are a user who has access to the vault and a reference ID to look up. |
How Does Tokenization Reduce Risk and PCI Scope?
Credit card tokenization is an effective tool for preventing fraud and supporting your payment security. It effectively reduces security risks and the PCI scope by replacing your sensitive card data with tokens.
PCI DSS measures apply when you’re transmitting, processing, and storing primary account numbers. With tokenization, this card number is replaced. This improves your security in a few key ways.
- Smaller Attack Surface: Because PANs are converted into tokens, there are fewer databases, logs, and services that contain PANs that you need to protect.
- Fewer Internal Issues: Developers and other team members at your company can work with tokens instead of PANs, reducing the likelihood of internal theft as well as breaches of your company’s data.
- Reduced Breach Impact: If a data breach does occur, card tokenization limits the impact. Even if cybercriminals access all of your customers’ tokens, they won’t be able to use them to steal money or make fraudulent purchases.
Additionally, credit card tokenization reduces your overall PCI scope because PCI focuses on card data. Each time a PAN is converted into a token, you have one fewer account number to protect.
How PayCompass Can Help With Your Payment Security Measures
At PayCompass, we can help you set up PCI tokenization for your company. Our team understands the best techniques for implementing advanced fraud detection, 3D secure payment gateways, and chargeback prevention tools. With our hosted and embedded payment flows, we can help you avoid directly handling data and reduce your PCI scope. From secure gateways to state-of-the-art encryption, we can ensure your payment processes are fast, secure, and fully compliant.
Final Thoughts
By adopting credit card tokenization, you can protect your brand and strengthen customer trust. This type of security measure also limits your PCI scope by converting PANs into tokens. For the business, this changes how sensitive data moves through your system.
Whether you’re dealing with card-on-file, online, subscription, or in-app payments, card tokenization is an effective measure for preventing fraud and improving your data security. It reduces the amount of risk you face by limiting the potential target size and reducing the impact of a data breach.
If you are interested in learning more about how payment tokenization can be set up at your business, reach out to our experienced payment processing experts today.
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