What is Tokenization? Meaning, Purpose, and Benefits You Need to Know

3 Mins read

Tokenization refers to the process of breaking down a set of strings into parts like words, keywords phrases, symbols, or other components known as tokens.

Tokenization is the process by which the characters such as punctuation marks are eliminated. The tokens are used as input to another process, such as parsing or text mining. If you’re not familiar with the idea of tokenization and you’d like to know the basics about this concept, you’ve come to the right spot. In this article, we’re going to go over everything you should be aware of about tokenization. So, without further delay let’s discuss tokenization, its significance as well as its purpose and advantages in the digital age.

What is Tokenization?

Tokenization is a procedure that allows a bit of sensitive information such as the credit card number to be replaced with a substitute value, referred to as a token. The sensitive information must be kept secure in a single place for future reference and needs strong security surrounding it. The security of a tokenization method is contingent upon the safety of values and the process and algorithm that is used to generate the surrogate value and map this back to its original values.

Although the tokens don’t have any relationship to value, they do retain some aspects of the original data, such as the common length or format. Therefore, they can be used to carry out continuous operational processes. Data that was sensitive to the original value is safe to be stored outside the internal systems of the organization.

Tokenization can be described as the reverse procedure used to exchange a token for the data that it represents. The process can only be performed through the tokenization process used originally. There is no alternative to determining the original code by merely examining the token.

Applications of Tokenization

Tokenization technology is utilized with sensitive information of any kind such as medical records, bank transactions, criminal records, and vehicle driver’s details. It is also used in the loan applications, voter registration, and trading in stocks. Most of the time the systems that can be used as a substitute for sensitive data could profit from tokenization.

What is the Purpose of Tokenization?

The reason for tokenization is to safeguard sensitive information while maintaining its value to the business. This is distinct from encryption, which is when sensitive data is altered and stored using methods that do not permit its use in the future to fulfill business needs.  If tokenization is similar to the card chip in a poker game, then encryption functions the same as an electronic lockbox. In addition, encrypted numbers are decrypted by using the right key. However, tokens cannot be reversed because there is no mathematical connection between the token and the initial number.

Is Tokenization Worth it?

Tokenization has many important advantages in securing private customer data:

  • Enhances customer trust

Tokenization adds a layer of security to eCommerce websites, thereby increasing customer confidence.

  • Increased Protection Against Data Breaches

By using tokenization, companies are not required to collect sensitive data from their terminals for input, save the data in internal databases or even transmit the information via the information system. This protects companies from security attacks.

  • Applications in the Health Domain

Companies can make use of tokenization tools to handle scenarios that fall under HIPAA. By replacing electronically secured health data (ePHI) or non-public private data (NPPI) using the tokenized value, healthcare facilities can better adhere to HIPAA rules.

  • Secure Credit Card Payments

The business of processing payments has to be in compliance with a wide range of guidelines and standards. Tokenization solutions allow you to secure cardholder information including the magnetic data from swipes, the primary account number, as well as cardholder details. Companies can meet the industry standards with ease and more effectively protect customer data.

Wrapping Up

Tokenization is an increasingly popular approach for mid-sized and small-sized businesses to improve their security for credit card transactions and electronic commerce transactions. Businesses can do all that with tokenization while reducing the expense and complexity of the process of ensuring compliance with regulatory standards and industry standards. This is why it’s become an essential aspect of data security for businesses across the globe.

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