Tokenization vs. Encrypting Credit Card Info

When processing payments in the store or over the phone, taking credit card payments have increased from 18% in 2016 to 28% in 2021. And it is said to only increase based on the convenience and value to the customer.

So, when it comes to processing a customer’s payment, businesses often need to decide if they want to tokenize or encrypt credit card information. Both options are viable, so we’ll explain them to help you determine which is best for your business.

What is credit card tokenization?

Simply put, credit card tokenization is a process by which sensitive data, like a credit card number, is replaced by a non-sensitive equivalent known as a token for a secure payment process. The token is then used (in the place of the card number) for sale, and the host/gateway decrypts the token and submits the transaction for authorization.

What is credit card encryption?

Keeping credit card data involves the merchant storing customers' financial data for future sales. Encryption masks the buyer’s data using an algorithm, scrambling the card’s information to make it unreadable without the proper key. This is an end-to-end method, as the data is kept secure from the point of purchase (in-store or online) until it reaches the intended destination. When a customer makes a payment, their info is retrieved from the system and used to process the transaction. Encryption does require a higher level of security measures in order to comply with the Payment Card Industry (PCI) Security Standards Council (PCI DSS).

It's all about security

The purpose of tokenization and encryption is to protect sensitive data while preserving its business utility. Tokenization differs from encryption, where sensitive data is modified and stored outside internal databases, and encryption is stored locally. While encrypted numbers can be stolen more easily, the data is useless without the appropriate decryption key. Tokenization makes it more difficult for hackers to access cardholder data because it’s stored away from your internal system.

The risks associated with keeping credit card info can be costly, time-consuming, and damaging to a company’s reputation. This is especially true for smaller businesses whose reputations can be destroyed if customers’ credit cards are compromised.

Adopting a payment system that directly integrates into your business management software can reduce costly data entry errors and open up options for digital payments while providing enhanced security for you and your customers. If not integrated, you will have to reconcile manually and sometimes manually batch out charges at the end of the night, adding additional work for you and your staff.

Ultimately, it comes down to choosing the payment processing method that best suits your business goals and risk tolerance. As mentioned, tokenization offers enhanced security and simplified PCI DSS compliance. While encrypting credit card information seems simpler, it puts businesses at risk of data breaches and requires more stringent security measures to comply with PCI DSS. Regardless of the method chosen, businesses must prioritize the security of their customers' data and implement the necessary steps to protect it.