Tokenization vs. end-to-end encryption

Over the last few months, the PCI Knowledge Base has been doing research on the impact of PCI compliance on fraud and fraud management for the Merchant Risk Council. One of the things we've learned is that, in general, the PCI-mandated controls are most effective at reducing internal fraud due to insider threat.

Many of the controls focus on limiting the number of employees who are authorized to access credit card data, whereas others focus on separating the systems that most employees access from the cardholder data environment. But the hottest trends in payment security concern two technologies that go  beyond PCI  as the standards are currently written. These are tokenization and end-to-end (E2E) encryption.

E2E Encryption addresses a major insider threat today. For many companies, encryption is not centrally managed. It is a feature that is easily added to applications; it's built into operating systems, databases, POS devices and so on. Even within the cardholder environment, it's not uncommon to find a half dozen different implementations of encryption and multiple key management systems.

In this situation, card data may have to pass through multiple systems internally on the way to the acquiring bank or processor. The result is the dreaded "encrypt, decrypt, re-encrypt" scenario, which opens up holes to unauthorized insiders.

With E2E encryption a company encrypts the data at the entry point (the point of sale [POS], the e-commerce payment software and the call center software) and the data remains encrypted throughout the process of passing it to the acquirer. The card number is never stored unencrypted by the merchant.

Several products are available for the POS channel and numerous products are available for the e-commerce channel, but any of these products can be rendered ineffective if a company insists on storing and using the data for other applications.