The Role of Encryption and Tokenization in PCI DSS Compliance

Shubhi Bhargava

April 12, 2025

PCI DSS compliance

The PCI DSS (Payment Card Industry Data Security Standard) Compliance is a group of security standards created to secure sensitive payment card information. It is applicable to any organization that stores, transmits, or processes credit card data. The main objective of PCI DSS is to ensure that data breaches and cardholder data theft are avoided through a strong security framework by implementing provisions such as encryption, access controls, network monitoring, and ongoing security assessments.

Among its security features, encryption and tokenization are key features in reducing risks related to storing, processing, and transmitting sensitive payment data and safeguarding sensitive customer data from unauthorized access.

Encryption

Encryption converts information by sending bits of information through an encryption key, turning it into ciphertext. The encrypted information can only be reversed to its original state using a decryption key that is possessed only by approved parties. The main goal of encryption is to make sensitive information unreadable or inaccessible in case of a breach.

PCI DSS Encryption Requirements

Encryption of Data in Transit
Encryption of Data at Rest
Secure Key Management
Use of Strong Cryptography
Access Controls

Core Functions of Encryption in PCI DSS: (Requirement 3 & 4)

Strong Encryption Algorithms: PCI DSS requires the implementation of industry-standard encryption algorithms, including AES (Advanced Encryption Standard) with a minimum key size of 128 bits or RSA with a key size of 2048 bits.
Secure Key Management : Keys have to be managed through secure key management procedures, such as key generation, distribution, storage, rotation, and retirement.
Dual Control and Split Knowledge: Split knowledge and dual control of keys are used to eliminate the possibility of a single person having access to the whole key and therefore being able to gain unauthorized access to the data.
Encryption of Data in Transit: Sensitive information must be encrypted during transmission over public networks because it is easy and common for a malicious individual to intercept and/or divert data while in transit.
End-to-End Encryption (E2EE): PCI DSS mandates encryption of cardholder data in transit over open or public networks by using TLS 1.2 or later or IPsec VPNs.
No Unencrypted PAN Transmission: PAN should never be transmitted in plaintext via end-user messaging services such as email, chat, or SMS.

Why Encryption Is Essential for PCI DSS:

Data Protection: Encryption is an important protection against data compromise. It makes cardholder data unintelligible to unauthorized users, limiting the effect of a security breach.
Compliance: PCI DSS encryption requirements must be met by organizations that process cardholder data. Non-compliance can lead to fines and loss of reputation.
Customer Confidence: Using robust encryption procedures reflects a dedication to safeguarding customer information, building trust and confidence.

Tokenization

Tokenization replaces the primary account number (PAN) with a surrogate value called a token, while de-tokenization retrieves the original PAN. The security of a token relies on the difficulty of reversing it to the PAN. Depending on the implementation of a tokenization solution, tokens used within merchant systems and applications may not need the same level of security protection associated with the use of PAN. Storing tokens instead of PANs is one alternative that can help to reduce the amount of cardholder data in the environment, potentially reducing the merchant’s effort to implement PCI DSS requirements.

Key principles of tokenization and PCI DSS:

Tokenization does not eliminate PCI DSS compliance but can reduce the scope of validation efforts.
Effectiveness verification is crucial to ensure PANs are not retrievable from out-of-scope components.
Security controls must be robust, and monitoring needs to be present to preserve tokenization integrity.
Implementations are diverse in methodologies, technologies, and processes and necessitate that merchants perform an extensive risk analysis and documentation of their tokenization strategy.

Data Vault

In a tokenization system, the card data vault stores PANs and their corresponding tokens, enabling the token-mapping process. As it contains sensitive PAN data, it must comply with PCI DSS requirements.
Due to its critical nature, the data vault is a prime target for attackers. A breach could compromise the entire tokenization system, necessitating enhanced security measures beyond standard PCI DSS controls.

Token Mapping

Token mapping is the process of assigning a token to the original PAN value. The ability to retrieve a PAN in exchange for its associated token should be restricted to specifically authorized individuals, applications, and/or systems. Any system component that can be used to retrieve PAN data would need to be protected according to PCI DSS.

PCI DSS Requirements

Because the tokenization system stores, processes and/or transmits cardholder data, it must be installed, configured, and maintained in a PCI DSS compliant manner. Characteristics of a tokenization system that meets PCI DSS requirements include but are not limited to the following:

The tokenization system does not provide PAN in any response to any application, system, network, or user outside of the merchant’s defined CDE.
All tokenization components are located on secure internal networks that are isolated from any untrusted and out-of-scope networks.
Only trusted communications are permitted in and out of the tokenization system environment.
The tokenization solution enforces strong cryptography and security protocols to safeguard cardholder data when stored and during transmission over open, public networks.
The tokenization solution implements strong access controls and authentication measures in accordance with PCI DSS Requirements 7 and 8.
The tokenization system components are designed to strict configuration standards and are protected from vulnerabilities.
The tokenization solution supports a mechanism for secure deletion of cardholder data as required by a data-retention policy.
The tokenization solution implements logging, monitoring, and alerting as appropriate to identify any suspicious activity and initiate response procedures.

At SandBox Security, a PCI QSA company, we specialize in guiding financial organizations to achieve and sustain PCI DSS compliance, empowering them to thrive in an era of digital risk. For support and guidance, reach out to us: contactus@sandboxsecurity.ai

Tags :

Cyber Security, PCI DSS, PCI DSS compliance

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