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September 11, 2023

Exploring the Benefits of Tokenization of Sensitive Data

The history of vaults dates back thousands of years. The ancient Egyptians, recognizing a need to protect money and other valuable belongings, developed locks people could put on containers to secure their contents. The Romans created more sophisticated mechanisms that promised an even higher level of security.

Over the years, there’s been an ongoing battle against technological developments that made breaking into vaults and safes easier. Clever thieves used torches to cut through steel doors or explosives to rupture a safe’s walls. Today, cyber attackers attempt to bypass security measures by attacking access control systems, surveillance cameras, and alarms.

To best understand data tokenization solutions, it’s helpful to think of your organization’s data as a well-guarded vault containing its most valuable assets, including trade secrets, personally identifiable information (PII), and important records. Tokenized data ensures your business complies with privacy and security laws like the GDPR and CCPA and is protected against sensitive internal and external data breaches.

Tokenization: What It Is and How it Works in Data Security

The tokenization of sensitive data is a relatively simple concept but it packs an impressive security punch.

The tokenization process works by replacing sensitive information with randomly generated “tokens,” or unique identifiers that in no way correlate to the original data. The original data’s integrity is entirely maintained, so users can continue to conduct various operations without the need to expose the actual sensitive data.

A dedicated, virtual “token vault” ensures optimal security, securely storing the mapping between tokens and original data. If someone gains unauthorized access to the tokenized data, it remains indecipherable.

What data needs to be tokenized depends on your business and industry. Generally, medical records, bank accounts, credit card numbers, Social Security and driver’s license numbers, and more should be tokenized.

While the financial and healthcare services industries are currently the largest users of data tokenization, enterprises from a broad spectrum of sectors are beginning to appreciate its value. As privacy regulations become more stringent and penalties more commonplace, organizations across the board of looking for advanced solutions that help them protect PII while maintaining full business utility.

Understanding Tokenization of Sensitive Data

Data tokenization begins the moment data is submitted. For instance, if someone inserts, swipes, or taps their credit card at a terminal, a token is presented in place of the card’s real information. The virtual vault then matches the tokenized data to the person’s “live” card information and initiates payment.

A critical feature of tokens is that, unlike methods like encryption, they cannot be converted back to their original values; they’re only substitutes for data and have no meaningful value outside that function.

Common Tokenization Use Cases

Is tokenization the best choice for your application? The answer is likely yes if you want to:

  • Reduce compliance scope, as tokens aren’t generally subject to compliance requirements provided there’s sufficient separation of the tokenization process and the applications using the tokens.
  • Restrict sensitive data to only those with a “need to know.”
  • Avoid sharing actual data with service providers and vendors who need access to sensitive data.
  • Allow sensitive data to be used for other purposes like business analytics of marketing metrics and reporting.
  • Mitigate threats from malicious attackers, including accidental internal events, which can account for over half of all data breaches.

Key Benefits of Tokenization

It’s estimated that the global tokenization market will increase from USD 3.4 billion in 2021 to 8.6 billion in 2027. As enterprises continue to modernize legacy applications, the risks and impacts of a data breach are steadily rising. At the same time, regulatory requirements for data privacy and protection are becoming stricter, with non-compliance leading to high penalties, litigation, and reputational damage.

Tokenization helps secure sensitive information, enhance PCI compliance, and build customer trust. Key benefits include:

  • Enhanced security. Sensitive data exposure is reduced, minimizing a data breach’s impact. And because the authentic data is isolated in a secure token value, it’s less susceptible to unauthorized access.
  • Regulatory compliance. Because it is non-reversible, tokenization makes it easier to comply with various data protection regulations like GDPR and HIPAA and avoid hefty non-compliance penalties and fines.
  • Minimized data exposure. As opposed to data masking, tokenization retains referential integrity while reducing actual data exposure. The risk of unauthorized access is significantly reduced while users retain access to the information they need to do their jobs.
  • Simplified monitoring and auditing. Centralized data access points in the token vault allow you to track and manage data interactions more effectively by providing a clear record of token usage and system activity.
  • Use case versatility. Tokenization can be applied across most industries, including insurance and healthcare, finance, pharma/biotech, telecommunications, and higher education, where protecting PII is paramount. From securing payment transactions to safeguarding patient records, tokenization’s adaptability ensures your data’s security remains a top priority, regardless of operational context.

Data Tokenization vs. Data Masking: A Comparison

Tokenization and data masking each offer vital data security, but they cater to different organizational needs and security requirements. Understanding how they differ helps you make a more informed decision about which is the most appropriate method for safeguarding your PII.

As mentioned earlier, tokenization’s greatest advantage is its non-reversible nature, which means that even if they’re compromised, they can’t be reversed to reveal your original sensitive data. Data masking, on the other hand, alters sensitive data in a way that makes it unintelligible or unreadable, but it retains the data’s general format and characteristics. It also doesn’t maintain a direct link to the original data as tokenization does. Instead, it uses obfuscation, where values or characters are replaced with scrambled information. Most significantly, data masking can be reversed or converted back to its original form, making it better suited for scenarios where the original data must be retained for certain tasks.

To sum up:

  • Tokenization maintains a link to the original data.
  • Data masking obscures original data.

Which method you use largely depends on your specific security needs and operational requirements. When choosing between different techniques, the one you choose should align with your overall data protection strategy.

Exploring Data Tokenization Solutions

Once you decide that tokenization is the right solution for your organization, you’ll need to choose between managing the process internally or using a third-party service provider.

Advantages to managing tokenization within your business are:

  • The ability to direct and prioritize the implementation and maintenance of the solution.
  • Customizing it to the application’s precise needs.
  • Developing the subject matter expertise to remove third-party dependency.

An in-house system can be suitable for large enterprises with extensive resources and expertise in data security and relevant technologies. However, it isn’t without its challenges, including high development costs, ongoing maintenance, and the need to keep current with evolving security standards.

The most significant benefit to using a third-party data access governance platform for managing and accessing data is that:

  • It’s already complete. There’s no need to develop the tokenization process yourself. Instead, you get a ready-to-deploy solution that significantly reduces implementation time and associated costs.
  • Tokenization and access controls are well-tested. You benefit from advanced features like token vault service, encryption protocols, and seamless integration with existing systems.
  • There’s a clear separation of duties, as the third-party provider owns privileged access to the token vault.
  • Third-party providers specialize in one thing: data security. They have dedicated expertise and stay current with the latest threats, best practices, and compliance regulations.
  • You get ongoing support, ensuring receipt of timely updates, enhancements, and patches that help you keep up with evolving security requirements.

In summary, while an in-house system offers customization, a third-party data tokenization solution can be far more convenient and cost-effective, offering advanced features that fortify your organization’s data security while streamlining operations, something that’s critically important in an increasingly complex digital landscape.

Is Tokenization The Right Choice for Your Organization?

In a world where data breaches and privacy concerns loom large, tokenization shines as a beacon of data security. It offers a multi-faceted approach to safeguarding an organization’s valuable information, reducing data exposure risks across industries and use cases.

By replacing PII with tokens, you can significantly reduce the risk of unauthorized access and data breaches and ensure that, even if a breach occurs, the compromised tokens remain impervious to decoding.

Tokenization also streamlines regulatory compliance, a paramount concern for businesses big and small that must comply with regulations such as GDPR, CCPA, and HIPAA. It helps your organization meet these and other requirements by providing an effective means to protect sensitive data and maintain compliance without impeding operational efficiency.

Because data security doesn’t come with a one-size-fits-all solution, it’s essential to choose the right data security solution for your business’s specific needs. Factors to consider include:

  • Use cases
  • Industry regulations
  • Organization objectives

It’s also important to keep in mind that while tokenization is a powerful tool, data masking and encryption are as well. Understanding the subtle nuances of your organization’s data landscape ensures you choose a security strategy that aligns seamlessly with operational goals.

As organizations collect, store, and analyze greater volumes of data, implementing tokenization will be central to ensuring data security and compliance. Unfortunately, that’s often easier said than done—unless you have the right tools.

Velotix was designed to allow for the collection, sharing, and use of sensitive information while preventing its disclosure to unauthorized users. It helps organizations mitigate financial losses and avoid reputational damage, loss of customer trust, and regulatory penalties.

Ready to see for yourself how easy it can be to implement data access control using Velotix? Watch our video detailing the data security platform’s unique differentiators. Then contact us to book a demo.