How Does Tokenisation Work in Payment Gateways? - PayXpress

How Does Tokenisation Work in Payment Gateways?

5 min read

Enhancing Security and Streamlining Transactions

In today’s digital commerce, online transactions are increasingly commonplace. The share of online purchases as a percentage of all euro area day-to-day transactions has increased significantly to 17% in 2022, up from 6% in 2019 (source: The European Bank). This trend makes payment gateways essential for e-commerce platforms. To ensure the security and integrity of these transactions, businesses increasingly rely on tokenisation as a robust solution.

What is tokenisation

Tokenisation is a process of replacing sensitive data (such as a credit card number) with a unique identifier. This security measure ensures that sensitive data is not exposed, making it an ideal solution for securely storing and transmitting data.

 This process can be used in payment gateways to enhance online transaction security further and streamline buying. By replacing sensitive data with a token, the payment gateway can securely validate the transaction without exposing the customer’s private information. Additionally, tokenisation can automate payment processing, resulting in faster and more efficient transactions.

  • A process of replacing sensitive data (such as a credit card number) with a unique identifier
  • A security measure that ensures sensitive data is not exposed
  • A method to securely store and transmit data

Benefits of tokenisation

Tokenisation offers several benefits for payment gateways, including:

  • Increased data security by reducing the risk of data breaches
  • Improved customer experience with faster checkout times
  • Reduced PCI compliance costs due to fewer sensitive data being stored
  • Replacing credit card numbers with a unique identifier
  • Reducing the risk of fraud and data breaches for payment gateways
  • Secure and seamless integration with other platforms enabled

Data Masking vs. Tokenisation

The difference between the two can be summed up in the first method as hiding data, whereas the second is replacing data.

Data masking and tokenisation are techniques used in data security and privacy to protect sensitive information. They serve different purposes and apply to different scenarios.

Data masking is the act of hiding sensitive information by replacing it with modified data while keeping the original format intact.

The primary goal of data masking is to protect sensitive data while still allowing the use of the dataset for specific purposes like testing, analysis, or sharing with third parties without revealing the actual sensitive information.

Hiding sensitive data is achieved by changing it. Tokenisation replaces sensitive data with meaningless tokens and stores the actual data in a secure place.

Both techniques are essential for safeguarding sensitive information and maintaining data privacy. The choice between data masking and tokenisation depends on the specific use case and security requirements.

Data Encryption in Payments

 Data encryption in payments is crucial to ensuring the security and confidentiality of sensitive payment information during the transaction process. A central element is converting payment data into a ciphertext, which is unreadable without the appropriate decryption key.

This encryption process prevents unauthorised access and protects the data as it travels through various networks and systems involved in the payment transaction.

Encryption at Point of Entry: When a customer initiates a payment transaction, sensitive payment information (such as credit card numbers, CVV codes, and personal identification numbers) is entered into a payment gateway or a POS terminal. At this point, the data is encrypted using cryptographic algorithms before it is transmitted over the internet or a private network.

Secure Transmission: The encrypted payment data is sent to the payment processor or acquirer through secure channels. Transport Layer Security (TLS) or Secure Sockets Layer (SSL) protocols are commonly used to ensure secure data transmission between the various parties involved in the payment process. These protocols establish an encrypted connection to protect data in transit.

Payment Processing: Upon reaching the payment processor, the encrypted data is decrypted using a unique decryption key. The processor validates the transaction, checks for sufficient funds or credit, and ensures the transaction is legitimate.

Tokenisation: In some cases, the tokenisation process may replace sensitive payment data after the initial encryption. The sensitive data is securely stored in a token vault, which a third-party tokenisation service provider manages.

Secure Data Storage: In addition to encrypting data in transit, it is also crucial to protect payment information when stored in databases. Payment processors and merchants often employ robust encryption methods to safeguard cardholder data within their systems.

End-to-end Encryption: Some payment solutions utilise end-to-end encryption, where data remains encrypted from the point of entry to its final destination, such as the payment processor or the acquiring bank. This approach ensures that the stolen data remains unreadable without the decryption keys, even if a data breach occurs.

Encryption protocols and standards are essential to meet industry security requirements, such as the PCI DSS (Payment Card Industry Data Security Standard), which sets guidelines for securely handling payment card data.

Data encryption is crucial in securing payment transactions, safeguarding sensitive information, and building trust between consumers and payment service providers. It is an essential element in maintaining the integrity of the global payment ecosystem.

 The Case for Tokens

Tokenisation is an essential security measure for any payment gateway. Payment gateways can protect against data breaches and fraud by replacing sensitive data with a token. It also reduces the risk of unauthorised third parties accessing or misusing data.

Reducing the risk of a data breach significantly helps to reduce the costs associated with PCI compliance. The process also enhances the customer experience, reassuring customers that their data is safe and secure.