Tokenization: A privacy solution worth watching

The privacy-protecting technology is making inroads in the private sector but has yet to break into the government market.

In my car's cup holder, I have a relic of a past summer vacation: a gold coin adorned with a pirate’s face, good for a free game of miniature golf at a course in Bar Harbor, Maine. Unfortunately, the token is worthless — sentimentality aside — anywhere but at that particular seaside course and only during the summer when it's open.

That notion of context-specific value is the idea behind tokenization, a fast-growing alternative to data encryption for protecting valuable personal information from theft or accidental disclosure.

A growing number of merchants are using tokenization to replace customer credit card numbers with random numbers, or tokens, that act as placeholders in electronic and paper records. Those tokens would be worthless to a thief who got his or her hands on them because the only place they have any value is inside a token server, an electronic vault that stores the link between tokens and real card numbers.

Tokenization makes merchants' security job easier because they only have to protect credit card numbers in one place — the electronic vault — versus in every system that could have a copy of a real card number. Tokenization can also be less complex to deploy and thus less expensive overall than end-to-end encryption, the typical alternative for securing card data as it gets passed around, security experts say.

Vendors who sell tokenization products are looking to expand their horizons beyond credit cards and apply their technology to protect other types of personal information, such as Social Security numbers, driver's license numbers, medical record identifiers and more.

Government is the primary issuer of many of those credentials, and it shares and processes countless documents that reference such personal identifiers, making it a good fit for tokenization, said Scott Crawford, managing research director at Enterprise Management Associates.

“An issuing agency, for example State in the case of passports, will obviously have direct access to passport number information, but that doesn’t mean that the number needs to be shared widely,” Crawford said. “Tokenization could help to gain a better level of control over what is and is not shared.”

Agencies also might use tokenization to obscure personal data in electronic records as they move them from private in-house storage systems to more cost-effective, cloud-based services offered by third-party providers.

“You could keep the token server in-house, then only use the tokens in the cloud,” said Rich Mogull, CEO of Securosis.

All those potential government use cases hold water conceptually, but whether they provide sufficient cost benefits for agencies to justify investing in tokenization technology is another matter.

Most tokenization implementations are for credit card transaction systems, for which the cost justification is simple, analysts say. Organizations that need to comply with the Payment Card Industry Data Security Standard (PCI DSS) expend sizable resources to ensure that their systems are properly secured and pass regular audits.

When firms substitute tokens for credit card numbers, those systems that see only tokens are no longer subject to the same compliance obligations, providing easily measurable savings. One tokenization vendor reports that one of its retail customers took 80 systems — nearly 90 percent of its infrastructure — out of scope for PCI DSS audits.

Of course, some government agencies handle credit card information, so the PCI DSS compliance benefits would apply. And on a different front, tokenization vendors are starting to adapt their products to handle patient data in compliance with the Health Insurance Portability and Accountability Act, another potential fit for certain agencies.

But it’s a different story when it comes to other types of personal identity information that are not subject to regulatory regimes or penalties for breaches. That might make tokenization a tougher sell in the broader government market.

“I wouldn’t hold my breath,” said Avivah Litan, a security analyst at Gartner. “There aren’t that many conscientious security organizations that have the budget to spend. And it’s hard for them to make a business case to their management unless they’re going to get fined if they don’t do something like this.”

In May 2007, the Office of Management and Budget directed all agencies, in keeping with previous laws, to eliminate the unnecessary use of Social Security numbers, tighten security controls and adopt breach notification policies. But it also said to do so using existing resources.

Unfunded mandates and good intentions rarely lead to new technology purchases, so tokenization might need to get a value makeover before it sees widespread government use.

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