Tokenization is a way for credit card information (also called the Primary Account Number or PAN) to not be used in credit card processing transactions and instead replaced with a token. This is similar to the use of arcade tokens which are valueless outside of the arcade that issued the tokens for money. Tokenization is where this cardholder data (PAN) goes through an encryption process, which makes it useless to hackers if observed or stolen.
For more information on tokenization, watch this short video:
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