Tokenization is basically a substitution technique. Substitution is practiced to isolate data or information in an ecosystem.
Payment world adopted tokenization to secure sensitive data like Primary Account Number (PAN) aka card number. It simply takes a PAN and substitute it with a ‘token PAN’ which is seemingly nonessential 16-digit long alphanumerics.
Typically, the token will retain the last four digits of the card as a means of accurately matching the token to the credit card owner. The remaining numbers are generated using proprietary tokenization algorithms.
This token then can be used for payments without actual details being exposed. The actual card number is held safe in a secure token vault.
Token pass through all the systems involved in authorizing a transaction while payment information stays safe. The token can only be “unlocked” when it has reached its final destination, the payment processor. Until then, it’s meaningless to anyone who might encounter it.
Tokenization is a great way to protect cardholder data. Not only does it safely protect, but it allows for a re-bill to be done without asking the customer for a credit card number again.