Encryption

In regards to credit cards, encryption is an electronic security mechanism. It is used to decrease the chances of personal cardholder  information being stolen during in-person  transactions. Sensitive data required for payment card sales is converted into an encoded cryptogram unique to that specific transaction. The code is only decipherable by the payment processor using the corresponding decryption key.

The key to this encryption is the microprocessing chip embedded into nearly all modern credit cards. When a credit or debit card is inserted, or “dipped” into a merchant terminal with a chip reader, it replaces the cardholder’s data with a random string of numbers that  is sent to the credit card processor. There, the data must be decoded back into the real payment information so the purchase can be authorized.

Each token is unique, meaning it can only be used once. Even if the data were somehow intercepted during transmission, a hacker would only obtain the meaningless number string. When the card is used to make another purchase, a new code is generated.