Payment data encryption: how it works and why it matters

Key takeaways

• Payment data encryption turns sensitive card details into unreadable code, which protects them during transmission and storage so intercepted data is useless to attackers.

• Encryption works alongside tokenisation, fraud detection, and compliance standards like PCI DSS as part of a layered security approach to payment processing.

• Airwallex encrypts all payment data in transit and at rest using TLS v1.2 and AES-256, and is PCI DSS Level 1 certified, so you can accept payments globally with confidence.

Every online transaction your business processes comes with risk. Customer card numbers, personal details, and transaction data all move through networks where attackers are constantly looking for weak spots. One breach can cost you customer trust, regulatory fines, and months of damage control.

If you want to keep payment information safe whilst still giving customers a smooth checkout experience, you need payment data encryption. Payment data encryption turns sensitive data into unreadable code, so it's worthless to anyone who intercepts it.

In this guide, we'll walk through what payment data encryption is, how it works during a transaction, the main methods and standards you should know, how encryption compares with tokenisation, and what to look for in a payment provider's security setup.

What is payment data encryption?

Payment data encryption is the process of turning sensitive information, like credit card numbers, CVVs, and transaction details, into scrambled code that's unreadable without a specific key.

Think of it like putting a confidential letter into a locked box before sending it through the post. If someone intercepts the box, they still can't read what's inside unless they have the key to open it.

Here's the practical benefit. Even if a hacker intercepts encrypted payment data in the middle of a transaction, they don't get "4111 1111 1111 1111," for example, they get something like "7f3a9b2c8d1e4f6a", which is a string of characters that's completely useless without the decryption key.

That protection applies whether the data is moving across a network or sitting in a database.

Why payment encryption matters for your business

Encryption isn't just a technical box to tick. It has a direct effect on your compliance status, how willing customers are to buy from you, and how exposed you are to costly breaches. Here's a few reasons why payment encryption is so important:

Protects sensitive data from interception: When payment data travels from a customer's browser to your payment processor, it passes through multiple points on the network where it could be intercepted. Encryption makes sure that even if someone captures that data, they still can't read it without the decryption key. An intercepted encrypted card number looks like random characters, not usable payment credentials.

Keeps you compliant with PCI DSS: The Payment Card Industry Data Security Standard (PCI DSS) requires cardholder data to be encrypted both in transit (Requirement 4) and at rest (Requirement 3). Meeting these standards isn't optional if you want to accept card payments, and not complying can lead to fines, higher transaction fees, or even losing the ability to process cards altogether.

Builds customer trust and improves conversion: Your customers might not know the technical side of encryption, but they do notice the signs that a checkout is secure: the padlock icon in their browser, the HTTPS in your URL, and a payment flow that doesn't send them off to unfamiliar third-party pages. These visible trust signals, all made possible by encryption, help reduce cart abandonment and give customers the confidence to finish their purchase.

For more on how security shapes buyer behaviour, see our guide on building customer trust with payment security.

What happens when payment data isn't encrypted

Without encryption, card numbers and personal details move across networks in plain text, which means anyone who intercepts them can read them. A breach exposes your customers to fraud and exposes your business to regulatory fines, legal costs, and reputational damage that can take years to repair. In severe cases, card networks may revoke your ability to process payments entirely.

How payment data encryption works during a transaction

When a customer enters their card details at checkout, encryption starts right away. Here's what happens:

• Card details entered: The customer types their card number, expiry date, and CVV into your checkout form.

• Data encrypted by the browser: Before the data leaves the customer's device, it's encrypted using a secure protocol (typically TLS).

• Encrypted data transmitted: The scrambled data travels across the internet to your payment processor's servers.

• Data decrypted by the authorised recipient: The payment processor uses the decryption key to turn the data back into readable form for authorisation.

• Response encrypted and returned: The authorisation response travels back through the same encrypted channel.

This encryption happens in different ways depending on where the data is in its journey. There are three main types to understand.

Encryption in transit

When payment data moves across a network, from a customer's browser to your payment processor, it's exposed to interception. Encryption in transit protects that data by turning it into coded form that's unreadable without the right key. Think of TLS like a secure phone line. Before the conversation starts, both sides agree on a secret code, and everything said on the line is scrambled to anyone listening in.

The process works through a TLS handshake:

• The browser requests a secure connection from the server.

• The server sends a digital certificate to prove it's legitimate.

• The browser and server exchange a cryptographic key.

• Both parties use this key to encrypt and decrypt all data sent between them.

Encryption at rest

Encryption at rest secures payment data when it's stored on servers or in databases.³ Even if someone breaches your storage system, the data stays unreadable without the decryption key. This is specifically required by PCI DSS Requirement 3.

Encryption keys for data at rest are usually managed by Key Management Services (KMS). KMS tools manage the full lifecycle of encryption keys: creating them, storing them securely, distributing them to authorised systems, and rotating them regularly so no single key is used for too long. Cloud providers like AWS and Google Cloud offer KMS solutions that handle this complexity.

End-to-end encryption (E2EE)

End-to-end encryption goes a step further by making sure data stays encrypted throughout its entire journey, from the moment it's entered at a payment terminal or online checkout until it reaches its final destination.¹² Only the sender and recipient can read it. No intermediate servers can decrypt the data along the way.

The encryption keys are exchanged directly between sender and recipient, often using public key cryptography. The data is decrypted only on the recipient's device, not on any server in between. For card-present transactions at physical terminals, point-to-point encryption (P2PE) is the PCI-validated version of this approach.

Now that you know where encryption is applied, let's look more closely at the specific algorithms that do the heavy lifting.

What encryption methods and standards protect payments?

Several encryption techniques work together to protect payment data. The main ones fall into two groups: protocols that secure the connection, like TLS, and algorithms that encrypt the data itself, like AES and RSA.⁴

TLS (Transport Layer Security)

TLS is the protocol that creates a secure, encrypted connection between a browser and a server while data is being transmitted.⁵⁶ You might still hear people say "SSL", but SSL is the older predecessor. TLS is what's used on modern systems.

If you're evaluating a payment provider's security, look for TLS 1.2 at a minimum, with TLS 1.3 as the current best practice. TLS protects the whole data channel, not just individual pieces of data, which is why it's so important for encryption in transit.

AES (Advanced Encryption Standard)

AES is a symmetric encryption algorithm, which means it uses the same key to encrypt and decrypt data. The algorithm scrambles plain text through multiple rounds of substitution and transformation, which makes it unreadable without the key.⁷

You can choose 128-bit, 192-bit, or 256-bit encryption keys, depending on how much security you need.⁷ The bigger the key, the stronger the protection. AES-256 is considered the gold standard for payment data at rest and hasn't been broken by any known practical attack.⁷ Governments, financial institutions, and organisations that need the strongest data protection all use it.

RSA (asymmetric encryption)

RSA works differently from AES. Instead of using one key for both encryption and decryption, it uses a pair: a public key to encrypt data and a private key to decrypt it. Think of it like a public postbox. Anyone can drop a letter in, but only the owner has the key to open it and read what's inside.

RSA is commonly used in TLS handshakes and digital certificates to securely exchange the symmetric keys that then encrypt the actual payment data. That mix of asymmetric and symmetric encryption gives you both security and speed.

Payment encryption vs. tokenisation

Encryption and tokenisation often come up together, but they do different jobs. Understanding the difference helps you assess what your payment setup is really giving you.

Tokenisation replaces sensitive data with a random, non-sensitive placeholder called a token. The token has no mathematical relationship to the original data. It's simply a reference that maps back to the real information stored in a secure vault. Think of it like checking your coat at a restaurant: you get a ticket that's worthless to anyone else, but you can use it to get your coat back from the secure cloakroom.

The key difference is this: encryption can be reversed with the right key. Tokenisation can't be reversed through any mathematical process. The only way to get the original data back is to look it up in the secure vault where the mapping is stored.

When to use encryption vs. tokenisation

Most modern payment systems use both. Encryption is essential for protecting data as it moves through networks. Tokenisation is ideal for reducing the risk of stored data and shrinking your PCI compliance scope.

Here's how they work together in practice: when a customer saves their card for future purchases, the card number is tokenised in storage. When they make a payment, the token is detokenised in a secure environment, and the actual card data is encrypted for transmission to the card network. If you're assessing a payment provider, check that they offer both capabilities.

How encryption fits into your broader payment security setup

Encryption is essential, but it isn't the whole picture. Think of it like home security. Encryption is the lock on your door, but you also need an alarm system, security cameras, and building codes if you want proper protection. A strong payment security setup layers multiple defences together.

Layered security: Encryption, tokenisation, fraud detection, and 3D Secure

Here's how the main security layers work together:

• Encryption: Protects data in transit and at rest by making it unreadable to unauthorised parties.

• Tokenisation: Reduces stored data risk by replacing card numbers with tokens that have no exploitable value.

• ML-powered fraud detection: Analyses transaction patterns in real time to flag suspicious activity before it becomes a chargeback.

• 3D Secure: Adds an authentication step where the cardholder verifies their identity with their bank, shifting liability for fraud away from your business.

Together, these layers create a defence-in-depth approach, so a failure in one area doesn't expose your whole system.

How your checkout setup affects your encryption burden

The way your checkout is built affects how much encryption responsibility sits with you. With a hosted payment page, where customers enter card details on a page hosted by your payment provider, the provider handles encryption and PCI compliance for that card data entry. With a fully embedded or custom checkout, where card details are entered directly on your site, you take on more responsibility for securing that data. Airwallex offers both options: a hosted Checkout that minimises your PCI scope, and full API integration for businesses that want complete control.

Key management and staying ahead of threats

Even if you have strong encryption in place, the keys themselves still need to be protected. If keys are stored insecurely, lost, or not rotated regularly, attackers could eventually decrypt your payment data. You also need to keep encryption protocols up to date, moving from older versions like TLS 1.0 to TLS 1.2 or 1.3, and monitor for newly discovered vulnerabilities.

For most businesses, the practical answer is to work with a PCI DSS-compliant payment provider that handles key management, protocol updates, and security monitoring as part of the service. That lets you focus on your core business instead of turning into a security operations centre.

How Airwallex protects your payment data

You don't need to build and maintain your own encryption infrastructure. At Airwallex, security is built into everything we do, so you can accept payments globally with confidence.

Here's what that looks like in practice:

• TLS v1.2 encryption in transit: All data transmitted to and from our servers is encrypted using TLS v1.2, ensuring card details and personal information stay protected during transmission.

• AES-256 encryption at rest: Stored data is encrypted using AES-256, the gold standard for data protection.

• PCI DSS Level 1 certification: We hold the highest level of PCI DSS certification, which means our security controls meet the most rigorous industry standards.

• SOC 1 and SOC 2 compliance: Independent audits verify that our controls for security, availability, and confidentiality meet enterprise-grade requirements.

• ML-powered fraud prevention: Our machine learning models analyse transactions in real time to detect and block fraudulent activity before it affects your business.

• Network tokenisation: We replace sensitive card data with tokens, reducing your PCI scope and the risk of stored data exposure.

• Intelligent 3D Secure logic: Our system applies 3D Secure authentication intelligently, balancing security with checkout friction to protect high-risk transactions without slowing down legitimate customers.

• Flexible checkout options: Choose between our hosted Checkout (which minimises your PCI burden) or full API integration for complete control over the payment experience.

With Airwallex handling encryption, compliance, and fraud prevention, you can focus on what matters most: running and scaling your business.

Frequently Asked Questions (FAQs)

What is an encrypted payment?

An encrypted payment is a transaction where the customer's card details and personal data are turned into unreadable code before they're transmitted, so only the approved recipient can decode and process them. This happens automatically when you pay on a website using TLS. Your browser and the payment server set up a secure connection before any sensitive data is sent.

What's the difference between encryption and tokenisation?

Encryption scrambles data into unreadable code that can be reversed with a key, whilst tokenisation replaces sensitive data with a random token that has no mathematical relationship to the original. They're complementary: most payment providers use encryption to protect data in transit and tokenisation to protect stored card details.

What encryption standard does PCI DSS require?

PCI DSS requires cardholder data to be encrypted both in transit (using protocols like TLS 1.2 or higher) and at rest (using standards like AES-256). PCI DSS Level 1 is the highest certification level, and it's required for organisations processing over six million card transactions annually.

What are TLS and AES-256?

TLS (Transport Layer Security) is a protocol that creates a secure, encrypted connection between a browser and a server during data transmission. AES-256 (Advanced Encryption Standard with a 256-bit key) is an algorithm that encrypts stored data. Together, they cover the two main states of payment data: in motion and at rest.

How does Airwallex encrypt payment data?

We encrypt all payment data in transit using TLS v1.2 and at rest using AES-256. We're PCI DSS Level 1 certified and SOC 1 and SOC 2 compliant, with ML-powered fraud prevention and network tokenisation as additional security layers.

Sources and references

1. https://www.splunk.com/en_us/blog/learn/end-to-end-encryption.html

2. https://www.emerchantpay.com/insights/end-to-end-encryption-e2ee-what-is-it-and-how-does-it-work/

3. https://www.imperva.com/learn/data-security/data-at-rest/

4. https://cloudian.com/guides/data-protection/data-encryption-the-ultimate-guide

5. https://aboutssl.org/ssl-guide/

6. https://www.cloudflare.com/learning/ssl/how-does-ssl-work/

7. https://csrc.nist.gov/pubs/fips/197/final

Disclaimer: Airwallex (UK) Limited is authorised by the Financial Conduct Authority (FCA) under the Electronic Money Regulations 2011 (FRN: 900876) for the issuing of electronic money. This article was prepared in May 2026 and provides general information only. It doesn't take into account your objectives, financial situation, or needs. You should consider whether the information is appropriate for you before acting on it.