October 20, 2021

Tokenization- A Beginner’s guide!

On this edition of Payments Insider, we are bringing you a brief view on Tokenization. This RBI recommended method is creating buzz everywhere and we knew you’d have questions.

What is tokenization?

A merchant would send the credit card number to a trusted partner, such as your payment gateway, via encryption. In turn, the payment gateway will provide you with a reference number that reflects that credit card in their system.
This is a random string associated with the payment card number you, the merchant, provided to the gateway.

People usually confuse it with encryption. Let us see how they are different from one another

Tokenization Vs Encryption

Tokenization and encryption vary primarily in that the former employs a ‘token,’ whereas encryption uses a ‘secret key’ to protect data.

The fact that data encryption is reversible is a major flaw. Data that has been encrypted is intended to be recovered to its original, decrypted state. The algorithm employed to safeguard the data determines the encryption’s reliability. A more advanced algorithm ensures more secure encryption that is more difficult to crack.

Tokenization of data, unlike encryption, cannot be reversed. Instead of utilizing a breakable technique, this system replaces sensitive data with random data, making the tokens unbreakable. A token serves as a placeholder and has no inherent value.

Now that we know it is different from encryption, let us take a deep dive into its function and the overall process. Download our Payments Insider report and learn all you need to know about tokenization.

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