For all users of credit and debit cards, the RBI implemented “Tokenization” as of October 1, 2022.
Reserve Bank of India’s Card-on-file (CoF) tokenization regulations have taken effect with the goal of enhancing the security and safety of card transactions.
Sensitive information can be given additional coverage through the process of tokenization. To learn more about how tokenization affects online purchases, read the article.
What is Card Tokenisation?
Tokenisation is the process of replacing actual card information with a one-of-a-kind alternate code called the “token,” which must be distinct for the card, token requester (the organization that accepts customer requests for card tokenization and forwards them to the card network to issue a corresponding token), and device.
The digital token is a 16-digit card number that is a randomly generated string of characters, usually alphanumeric.
Now, merchants, payment aggregators, and payment gateways won’t be able to keep critical customer credit and debit card details including the three-digit CVV and expiration date for any purchases made online or through mobile apps.
It is important to note that tokenization is not a mandatory process. A customer can choose whether or not to let his / her card be tokenized.
The RBI ordered the use of card-on-file (CoF) tokenization as an alternative in September 2021, banning retailers from storing client card information on their servers beginning January 1, 2022.
The deadline was postponed because the RBI believed that despite significant advancements in token development and the start of transaction processing based on these tokens, the idea had not yet gained popularity among all types of businesses.
The deadline was subsequently extended till September 30, 2022, and as per RBI guidelines, it came into effect on 01 October 2022.
How Does Card Tokenization Work?
By starting a request on the app that the token requester provides, a debit or credit card holder can request to have their card tokenized.
In the event of an online transaction, a unique token will be saved on the server in place of the card information.
The merchant or transaction platform sends a message to Visa, Mastercard, or a payment gateway, which requests a token against that card number and then passes it on to the bank for approving the transaction.
For using the tokenization service, the consumer will not be charged.
Earlier, only interested cardholders’ mobile phones and tablets had access to the facility for card tokenization.
The RBI then made the decision to expand the scope of tokenization to encompass consumer devices like laptops, desktops, wearables (wristwatches, bands, etc.), and Internet of Things (IoT) devices as a result of an increase in tokenization volume.
What are the Benefits of Tokenization?
Since the real card details are not given to the merchant during transaction processing, tokenized card transactions are thought to be safer.
With card tokenization, a card- and merchant-specific token is generated. The token can now be used for all future online purchases with that merchant. This will provide heightened security.
Faster checkouts since the 16-digit card number, name, and expiration date do not need to be entered again. An additional layer of security will continue to be provided via CVV and OTP authentication.
Who can provide Tokenisation Services?
Only the authorized card network is able to tokenize, and only the authorized card network should be able to recover the original Primary Account Number (PAN).
A sufficient level of security must be established to prevent anyone other than the card network from obtaining the PAN from the token or vice versa.
Features of Tokenisation
Tokenisation is crucial to e-commerce since it protects clients’ payment information. It may put a stop to online crimes like credit card fraud and data breaches. The following are the top features of tokenization:
Provides Maximum Security
These tokens do not contain any information that might be useful to hackers attempting to steal your customers’ payment information. Thus, the additional security layer reduces the possibility of cyber theft while keeping the data safe and secure.
Increase in Credibility
Businesses won’t need to keep any credit card information if they work with a cloud tokenization provider. By doing this, the possibility of consumer data being stolen, revealed, or compromised by cybercriminals will be eliminated.
A data breach might have catastrophic results. Tokenisation can make it more difficult for customers’ sensitive payment information to be compromised. Since the tokenized data may now be accessed to sustain business operations, the original data can now be stored by the business providers in a safe token vault.
Boost the Online Customer Experience
Tokenization guarantees the protection of sensitive data while fulfilling all standards, regardless of upgrades.
The size of the worldwide tokenization market was estimated at $2,590.6 million in 2021, and it is expected to grow at a CAGR of 19.3% from 2021 to 2030 in order to reach $12,684.2 million.
With the start of the pandemic, the acceptance of digital payments has grown significantly. During the epidemic, demand for digital services increased dramatically on a global scale. According to data, during the fiscal year 2021–2022, digital payments in India surged fivefold by 33% YoY growth.
According to the RBI’s annual report for 2021–22, the volume of payments made using credit cards climbed by 27% to 223.99 crores, and the value increased by 54.3% to 9.72 lakh.
In addition to assuring the user experience, meeting security criteria to prevent a data breach is anticipated to fuel market expansion during the projection period.
Moreover, the goal of RBI’s tokenization effort is to protect all payment data. It will only increase the security of credit and debit card transactions with this new strategy to combat cybercrime.
Article Written By: Priti Raj