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Townsend Security Data Privacy Blog

Tokenization: A Cost-Effective Path to Data Protection

Posted by Luke Probasco on May 19, 2011 10:20:00 AM

tokenizationAs companies work to meet regulatory requirements to protect Personally Identifiable Information (PII), one option to minimize the risk of loss is to replace sensitive data with a non-sensitive replacement value, or “token.” 

Tokenization is the process of replacing sensitive information, such as a credit card or social security number, with a non-sensitive replacement value. The original value may be stored locally in a protected data warehouse, stored at a remote service provider, or not stored at all.  The goal of tokenization is to reduce or eliminate the risk of loss of sensitive data, and to avoid the expensive process of notification, loss re-imbursement, and legal action.

There are three primary approaches to tokenization:
    •  Tokens are recoverable and stored by external
       service providers
    •  Tokens are recoverable and stored locally
    •  Tokens are not recoverable

The first method of tokenization uses external storage of recoverable tokens and is implemented by a small number of credit card authorization networks.

The second approach to tokenization involves the creation and storage of the token on local IT servers. The token is protected by encryption and can be recovered by decryption when it is needed.

The third type of tokenization involves the creation of a token on local IT servers, but does not allow for the recovery of the original value.

If you do not need to store sensitive data in your database systems, tokenization can greatly reduce your risk of data loss. The original sensitive data can still be used to query a database or locate information in a business application. But by not storing the sensitive data, you will not be at risk of losing it.

It is important to note that if you use recoverable tokens you will still have the risk of data loss and will not be protected from any liability for a loss. You will also still be subject to all of the regulations  for protecting sensitive information.

Tokenization can be a powerful way to minimize risk in your development, QA, and UAT environments. When moving data to these environments you should always eliminate sensitive data to prevent its loss. Tokenization is an excellent way to do this.

Lastly, if you are a payment systems vendor you may wish to provide tokenization as a value added service to your merchant customers. Not only will you be helping them minimize their exposure to data loss, this can also be marketed as a competitive advantage for your business.

If you would like to learn more about tokenization, we recently presented a webinar titled "Tokenization & Compliance: 5 Ways to Reduce Costs and Increase Security."

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Topics: Encryption, Data Privacy, tokenization

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