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Tokenization vs Encryption in Payment Processing

Tokenization vs Encryption in Payment Processing

Because both tokenization and encryption in payment processing can help prevent hacking or unauthorized access, they’re often used interchangeably. However, they function very differently. As a business owner, you should know the differences between these two security measures to choose the most appropriate one to protect your data and secure customer payments.

That’s why REPAY is here to help explain the key differences between tokenization and encryption.

Tokenization vs Encryption


As its name suggests, this data security method uses an “encryption key” to safely encode sensitive information. This means that a “master key” is generated using a mathematical cryptographic algorithm to encode your data. Once your information has become encoded using this algorithm, it becomes unreadable without access to the key.

Encryptions are reliable, and there’s no limit to how complex the cryptographic algorithms can be made. However, since the algorithms themselves never change, you must take extra precautions to protect the master key. It’s possible to reverse engineer the master key to decode messages.

The downside of encryption is the possibility to decode all data, not just a single asset.


Tokenization is another way to protect data, but it doesn’t use a mathematical algorithm. Instead of “encoding” information, tokenization substitutes sensitive data with single-use or multi-use, non-specific IDs, known as tokens. Tokens are randomly generated and share no clear relationship with the original data. For example, you can have a 16-digit credit card number, and the associated token can be a 9-digit alpha-numeric code like “H696BFBN5.”

Since tokens are randomly generated, there’s no way to decipher the original data mathematically. Only the payment processor has access to a secure vault in which the token and corresponding information are kept. This way, only the payment processor can match the two values.

Tokenization vs Encryption: Which Is Better?

Both tokenization and encryption in payment processing have their advantages and disadvantages.

Tokenization is typically the more secure method for payment processing, provided that the token vault is adequately secured. Since tokens cannot be used by others, in the event a token is stolen, it will not be usable outside of your organization.

Tokenization can help reduce your PCI scope and make it easier to pass your annual PCI compliance assessments.

At REPAY, we pride ourselves on using a combination of both methods to ensure our client’s payments are perfectly secure and PCI compliant.

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