Tokenization Explained

Tokenization has been a bit of a buzzword in the payment industry for a little while now. We’ll look to cover this technology, addressing what it is and how it works in the payment space today. As more and more merchants look to tokenization to help with PCI Compliance, tokenization’s relevancy increases further.

Tokenization is essentially a tool used to protect consumers’ information, it is defined by as “the process of replacing sensitive data with unique identification symbols that retain all the essential information about the data without compromising its security”. This process protects sensitive payment credentials and in a climate of heavy fines and penalties being dealt with, those organisations that suffer data breaches, this technology’s ability to reduce data breach risk for sales organisations is vital.

Above is a definition of tokenization but what is it really? To break this term down further: it is the process of taking sensitive data such as credit or debit card numbers and turning it into a ‘token’ that represents that sensitive data – made up of upper, lower case, numeric and special characters – this data is stored by the provider and the merchant. This process makes storing data secure because “the token that has no value or connection to a person or their account” ( therefore if only the ‘token’ is stolen they are useless because they do not contain any cardholder data. As well as this the ‘token’ can also be used to process a transaction.

An easy way to break the understanding barrier that many of us face when first addressing this topic is to point out the similarity between encryption and tokenization. We have all, in some shape or form, dealt with encryption in our day to day lives. When we use passwords, when we store files to cloud storage or when we send messages via encrypted messaging services such as WhatsApp. The value this encryption adds is undeniable and we all rest easier knowing these measures are taken. This is much the same as tokenization, however, here are some of the differences that separate the two.

(Table from –

As you can see from the table above, tokenization and encryption are similar when compared side by side. Encryption, however, is more susceptible to data theft as the encryption can be reversed and the data revealed, whilst tokenization has no intrinsic value or meaning. With that said, there are different times to use each security methods – encryptions for larger volumes of data and whole files or videos and tokenization for structured data like card details, therefore best used with recurring payments such as gym memberships – they are best suited working together providing the safest method for security.


In conclusion, tokenization is a very useful and valuable tool. It can be used to make quick and secure payments but also provides crucial security for merchants. This technology is likely to continue its rise as it has a lot of positives (offer quick payments, PCI compliance, offers protection, reduces the likelihood of data breaches) but it also doesn’t have many negatives.

However, whilst providing a good level of security it is important to supplement this with another security measure. This is important as tokenization and will not provide complete security, so its best application is in tandem with another measure. As a business, you will need to explore this technology further to ensure its suitability.

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