Tokenization and encryption are two of the most popular data security methods. And while they are often used in conjunction because they disguise personal and sensitive card data and reduce data exposure, they are not interchangeable terms.
When choosing between the two security techniques to protect your data, you have to consider specific factors. Below, we’ll explore tokenization vs. encryption in more detail, as well as outline the differences to help you pick the right data security method for securing sensitive data.
What Is Tokenization?
Tokenization is the process of turning a meaningful piece of data into a random string of characters known as tokens.
A token has no meaningful value and only serves as a substitute for the actual data. What’s more, tokenization doesn’t use a cryptographic method to transform sensitive information into ciphertext, meaning you cannot use the token to guess the original data in case of a data breach.
Imagine an online business accepting payment from a customer using a third-party site like PayPal or Stripe. In this case, the third-party site can disguise the credit card number with other characters (tokens) to protect the customer’s card information. As a result, the business will only see that tokenized information and won’t have access to the actual card number.
Advantages of Tokenization
According to Statista, 540 data breaches alone took place within the first half of 2020. When you collect consumer data, you’re responsible for ensuring its protection. But when you use tokenization software, data gets stored in a third-party database, reducing your in-house responsibility of managing sensitive data. You also aren’t required to maintain the staff and resources needed to protect the collected data, nor are you as likely to reveal that data if you suffer a breach.
Tokenization is a time- and money-saving method, too. While it doesn’t eliminate Payment Card Industry Data Security Standards (PCI DSS) and other compliance requirements, converting the form of vulnerable data effectively reduces your team’s need to prove compliance. As you work with simple software tools and tasks to ensure compliance, you end up saving a lot of valuable time and money.
Disadvantages of Tokenization
Implementing tokenization does certainly add a layer of complexity to your IT structure, with processing transactions becoming more complicated and comprehensive.
It also doesn’t eliminate all security risks. When choosing a vendor to store data, you need to be very careful and ensure they have the appropriate systems in place to protect your data.
Moreover, only a limited number of payment processors support tokenization, which means you’ll either have to change your systems to accommodate this method or opt for a payment processing tool that may not be your first choice.
What Is Encryption?
Encryption is the process that uses mathematical algorithms to transform plain text information or sensitive data into unreadable information called ciphertext, which is generated using an encryption key. To make the text readable again, you would require an algorithm and a description key.
Suppose a company collects personal information like phone numbers, email IDs, and mailing addresses of its customers. It can use ciphertext to protect all information, so it’s only accessible by using an encryption key.
Advantages of Encryption
Through encryption, you can protect a variety of data types, including credit card information, files or emails, and Social Security numbers. While tokenization is more suitable for smaller pieces of data, you can safeguard full documents by encrypting the stored information.
The encryption process uses algorithms to secure data, which makes it faster. Tokenization takes much longer because each character or number is changed into a random character.
Encryption also allows you to share decryption keys with others or access files remotely—all without having to worry about security vulnerabilities. With tokenization, you would have to find a secure way to share your original information for the receiving party to decipher the token. However, with encryption, all they will need is the decryption key.
Disadvantages of Encryption
All data is encrypted using a single key in encryption, so if hackers gain access to that key, everything encrypted using the key becomes vulnerable. This can be an entire database or a single file, depending on whether the encryption is full disk or file-based. Regardless, this can be a significant blow to your IT security.
The other disadvantage is that encryption also hinders software functionality.
It’s possible for the ciphertext used to encrypt data to not be compatible with other software tools, hindering the functionality and value of those applications. You may also have a limited number of vendors to serve your software requirements.
Tokenization vs. Encryption: Exploring the Main Differences
Now that you have a clear understanding of what both terms mean, let’s explore the main differences between the two concepts.
Encryption scrambles your data using a process that’s reversible—provided you have the correct decryption key. You can encrypt your plaintext into ciphertext, which is then transmitted to the recipient, who can decrypt the ciphertext back into plaintext.
Under tokenization, two distinct databases are created: one having the actual data and the other with tokens mapped to each character of the presented data. A tokenization software randomly generates a token value for plain text and stores the mapping in the database. While the process is closely related to encryption, tokenization is irreversible.
Encryption has two primary approaches: symmetric and asymmetric. Symmetric key encryption involves using a single key to encrypt and decrypt data. If the key gets compromised, it will unlock all the hidden data. On the other hand, asymmetric key data uses two different keys—one for encryption and another for decryption. This way, multiple parties can exchange encrypted data without managing the same encryption key.
Tokenization uses tokens to disguise sensitive data or information by replacing the token value with the actual data to allow users to access the original data. The tokens authorize the user or the program to ask for the data, pull the correct token from the token database, and recall the actual data from the database before presenting it to the user or program.
Encryption is a reliable component of payment processing. Without a key to decrypt data, accessing encoded information will always fail. However, you must regularly rotate keys to protect payment information.
On the other hand, a token is a substitute for the information it represents, where participants don’t have to handle credit card information directly. A device-specific or merchant-specific token creates an additional security layer, and it’s possible to deactivate a compromised token in real-time with little to no impact on the customer.
The good thing about encryption is it can provide adequate support for scalability by encrypting large data volumes via mathematical algorithms.
On the contrary, tokenization can present considerable difficulties in disguising data at scale. If you try to tokenize large files or pieces of data, it’ll likely create latency issues, rendering the whole process ineffective.
PCI compliance warrants the safety of payment information as it mandates organizations to apply strict payment industry standards.
Meeting PCI encryption standards can take up a lot of resources and increase operating costs significantly. Contrarily, tokenization reduces the associated cost of PCI compliance as merchants don’t have to handle payment information directly.
Note: Although the tokenization process isn’t a PCI compliance requirement, it’s still considered an established practice in payment processing.
Without encryption, sharing payment information over exposed networks and storing card information is very dangerous. For instance, an ATM may not safely communicate with remote systems and validate card information, creating vulnerabilities.
It’s also widely used to protect communication from individuals and organizations from malicious hackers, as well as safeguard information stored on mobile devices.
Besides protecting payment card data, bank account numbers, email numbers, and so on, you can use tokens to simplify checkouts to drive sales. Customers can use their tokenized data to make purchases without entering their personal data or using their credit cards. Here are a few examples:
- In-app payments: Customers can use mobile apps to pay without closing or exiting the app.
- Digital wallet: Customers can create a token and use their mobile device or wearable to pay for services or goods.
- Recurring payments: E-commerce platforms and merchants commonly store customer tokens to initiate recurring payments without accessing or storing the customer’s card information.
- Pay buttons: Merchants can add pay buttons to their websites to allow customers to pay using previous tokens.
The above examples highlight how tokens make payment processing easy and convenient. In turn, this makes it more likely for customers to go through with their orders.
Tokenization vs. Encryption: What’s the Best for Your Business?
To decide between the two data security techniques, you have to answer a few critical questions:
- Which type of industry are you in, and is your company always prone to data breaches and hacking attempts?
- Are you looking to protect numbers like credit cards and account numbers (tokenization) or entire databases (encryption)?
- Which option would make it easier for you to comply with data security policies?
- Which option would be more feasible based on your budget?
- Based on your company size and customer base, how would tokenization or encryption benefit your company?
While the above are excellent guiding questions, we would recommend using both techniques together— tokenization and encryption—whenever possible. As both the methods are not mutually exclusive, you can employ them together to cover the other’s drawbacks and enhance your company‘s overall data security levels.