An HSM is intended for encryption and decryption of card numbers and verification of PINs, while a tokenization appliance implements vault functionality and handles key rotation required for PCI compliance. Together an HSM and tokenization appliance can implement functions like tokenization, point-to-point encryption, and processing of PINs and cards. Alternatively, vault software compatible with an HSM or developing your own vault software can provide vault functionality without a separate tokenization appliance.

1. HSM, Tokenization Appliance, or both?
It is important to understand, that hardware security modules (or HSM) and tokenization appliances
represent two types of devices which work together, but cannot replace each other.
A tokenization appliance is intended for implementation of vault functionality. However, some functions
related to encryption and decryption of cardholder data,are “delegated” to the HSM. In order to communicate
with a hardware security module, a tokenization appliance has a respective API. As PCI compliance
(http://paymentterms.org/glossary/pci-compliance/) requires encryption keys to be changed approximately
once a month, a tokenization appliance has in-built key rotation functionality (which an HSM doesn’t have).
An HSM is, basically, intended for encryption and decryption of card numbers, verification of PINs and EMV
cryptograms. However, without a tokenization appliance an HSM is unable to decrypt the data.
Together tokenization appliance and HSM enable you to implement a variety of cardholder data protection
functions. These include not only tokenization, but point-to-point encryption (P2PE),processing of PINs,as
well as card issuance.
In order to implement vault functionality, it is not necessary to purchase a tokenization appliance. The other
two options are licensing of vault software (http://unipaygateway.com/en/), compatible with your HSM, or
developing it yourself.
More information (http://paylosophy.com/hsm-tokenization-appliance/ ) on tokenization appliances and HSM
is available in the respective article on #Paylosophy.