Tokenization and encryption are some of the most common methods of protecting sensitive data, especially when it comes to locking down credit card data, personally identifiable information, and other confidential information required to meet governmental or industry compliance requirements.
While you probably know that both of these techniques improve your data’s security, you may be unfamiliar with what differentiates tokenization vs. encryption. If you’re interested in learning more about data security and these two strategies, read this guide! In it, we break down what data tokenization and encryption are, what differentiates the two, and help you decide which one is the right choice for your business.
The Importance of Data Security
Before we jump into specifics, let’s start by reviewing why data security is important.
One of the most common reasons businesses are interested in tokenization and encryption is because of compliance regulations. If you’re unfamiliar, certain industries require businesses to meet specific security and compliance measures. If your business handles things like:
- Sensitive Credit Card Data
- Personally Identifiable Information
- Protected Health Information
- Automated Clearing House Data
You are legally required to implement adequate security measures. The consequences of failing to meet compliance depends on your industry, but some of the most common repercussions include fines, legal action, and temporary business closure. If you want to avoid these issues, you need to implement appropriate data security measures.
But data security is about much more than meeting compliance. Data protection prevents security breaches, which can have devastating effects on your business, some of which include:
Operational Stoppages
The average length of interruption after a ransomware attack is 22 days—is your business prepared to stop operations for three plus weeks? Even if you’re able to weather a 22-day work stoppage financially, it could have lasting effects on your client, supplier, and employee relationships.
Invest in thorough cybersecurity measures to stay protected against data breaches and avoid the chance of operational disruption entirely. Don’t leave the future of your business up to chance, take data protection seriously.
Financial Costs
The average cost of a data breach in 2021 was $4.24 million, and these costs grow every year. A data breach gets more damaging the longer it goes undetected—poor cybersecurity measures could lead to data breaches that sink your business.
While the direct costs involved in recovering from a security incident are serious, there are innumerable indirect costs you’ll have to grapple with when handling a data breach. One of the main examples of this includes opportunity costs. You’ll miss an enormous amount of business during operational stoppages, and it will incur reputational damage that can seriously damage your sales down the line.
Reputational Damage
It takes years of doing things right to build up a good reputation, but it only takes a day of doing things wrong to ruin it. A data breach could crush your business’s reputation, especially if you work in an industry that regularly handles sensitive information. Industries most susceptible to a data breach include:
- Healthcare
- Financial
- Manufacturing
- Logistics
- Transportation
Huge amounts of confidential data pass through these industries everyday. Information getting leaked once could affect your business’s reputation forever.
Legal Penalties
Certain industries are legally required to meet certain security standards. If you’re in one of these industries, it’s imperative that you follow the required practices to secure your clients’ data. Failing to do so could lead to reprimands from your industry’s regulating body, especially if your negligence leads to a direct data breach. In fact, you may be held accountable for every client that’s affected by the breach. If your breach affects millions of customers, this has the potential to ruin your business.
Outside of fines, cybersecurity negligence can lead to your business license being revoked, forced closure, or even criminal prosecution.
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Damaged Client Relationships
Security incidents can dramatically impact your relationships with clients. Talking with a client about their data being compromised is tough and will fundamentally change your relationship moving forward. Partnerships are based on trust—breach that trust once, and it’ll be hard to earn back.
What Is Card Encryption?
Now that we understand the importance of proper data security measures, it’s time to discuss what you can do to secure it. Let’s explore two of the most common methods used to protect sensitive data: tokenization vs. encryption. The first one we’ll be examining is encryption.
Data encryption is the process of replacing sensitive data values with mathematically derived stand-ins. An easy way to understand encryption is as data masking. Instead of actually swapping out data for replacements, it changes its appearance while keeping it intact. The original data is designed to only be understood by authorized entities in possession of encryption keys, but cybercriminals frequently breach these security measures.
While some forms of encryption are more secure than others, every form can be compromised. With enough time and commitment, a cybercriminal will be able to breach encrypted data.
While encryption is a great start towards data security, it’s not a very robust cybersecurity technique. We wouldn’t recommend using encryption for highly sensitive data. Encrypted data is typically safe in transit, but it becomes extremely vulnerable within a business’s system. If your IT systems get breached, criminals will have the capability to convert the encrypted data to its original form.
Card Encryption Is Good for Businesses That…
While encryption isn’t the most comprehensive strategy, it’s preferable to transmitting unencrypted information. Encryption is ideal for transmitting information that you aren’t overly concerned about locking down, particularly if you’re in an industry that isn’t tightly regulated. If your industry doesn’t deal with a large volume of sensitive information, encryption may be worth considering. It’s easy to implement, a solid defense, and cost effective. When comparing tokenization vs encryption, encryption isn’t as comprehensive a strategy.
However, we cannot recommend encryption alone for businesses that work with credit cards. Credit card transactions are highly regulated by the PCI Data Security Standards (DSS). Businesses that accept credit card transactions are obligated to meet PCI compliance. Card encryption isn’t enough to be PCI compliant.
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What Is Data Tokenization?
When looking at tokenization vs. encryption, tokenization is a superior security measure. Where encryption is a simple data masking process, tokenization involves swapping out data for completely different figures. This means that tokenized data isn’t able to be restored to its original form, even if it’s compromised.
Tokenization randomly generates placeholder numbers in place of real figures. These placeholders meet all the other requirements needed to transmit and work with this data without having to deal with the data itself. The actual data is taken and placed in a secure location outside of the business environment.
Even if breached, a tokenized environment is still secure. This eliminates the risk of data theft in organizations that incorporate tokenization.
Data Tokenization Is Good for Businesses That…
Tokenization is the ideal solution for businesses that are dealing with extremely sensitive information, especially if it’s regulated. If you work in regulated industries like healthcare, finance, or within the government, data tokenization can ensure that your data stays secure and can make compliance easy.
Outside of these highly regulated industries, data tokenization is a great solution for any business that deals with credit card payments. All credit card payments are highly regulated by merchants that help you broker these transactions, and failing to meet PCI compliance could lead to your relationship being adversely affected.
Tokenization vs. Encryption: In Summary
When comparing tokenization vs. encryption, tokenization is the more thorough cybersecurity option. If you deal with credit cards or work in industries with strict compliance standards, data tokenization is the right approach for you. Outside of meeting compliance though, data tokenization prevents costly cyberattacks that could cost your company time and money.
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Meeting the PCI DSS is a headache, there are hundreds of stringent requirements that are exhausting just trying to understand.
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