The RBI, the central bank of India, is now prepared to impose card tokenization in India after allowing users to link their credit cards with UPI. In the midst of all of this, many users are perplexed as to what card tokenization actually is and why apps and websites advise users to secure their credit and debit cards in accordance with the RBI’s new guidelines. We have therefore provided an explanation of card tokenization and the benefits of opting in order to allay your concerns. In addition, we have covered the benefits and drawbacks of card tokenization in a nation like India. Let’s now learn more in-depth about the RBI’s new card tokenization regulations.
Credit/ Debit Card Tokenization in India: Explained (2022)
We have covered every aspect of the RBI’s card tokenization initiative and what it means for Indian consumers in this article. The benefits and drawbacks of card tokenization, the necessity of card masking, and other topics are covered. Expand the table below to see all of its sections.
What is Card Tokenization?
The RBI has been pressuring the Indian payments sector to adopt card tokenization at least as of 2019 in order to safeguard and improve the security of online card transactions. But what is card tokenization exactly, and how does it operate? Well, allow me to give you an illustration.
When you use your credit or debit card to make a purchase from an online retailer like Amazon or Flipkart, you must enter the card number, your name, the expiration date, and the CVV. You don’t want these highly private and confidential details to end up in the wrong hands. Now, if you choose to save your card information on a website or an app, you are essentially allowing the website or app to store your card information (aside from the CVV) on their cloud servers.
And if you follow the news in the finance sector, you know that there have been a lot of data breaches recently. Card information was leaked in plain text on the dark web from popular Indian websites and digital payment apps that had been compromised. We are still quite aware of the India data leaks from TheMobiKwika and Domino. As you can see, your data becomes vulnerable to data breaches and leaks if you save your private card information on cloud servers of numerous such online apps and websites.
While some websites may have the highest levels of security in place to protect your card information, others may not be adhering to the international security standards. Your credit card information being dispersed over several servers with varying levels of security gives hackers more access points. The RBI now wants to alter the current state of digital payments and implement tokenization to uniformly secure all online card transactions.
According to RBI standards, a token is produced against your card and saved on the cloud servers of the merchant when you choose to save your card information on an app or website (referred to as a merchant). Your sensitive card information is not disclosed to the app or website in this case. The token, which points to your card, is a special, encrypted code. In this way, your card will be safe from online data breaches because merchants won’t have access to your sensitive card information.
card tokenization is a mechanism introduced by the RBI to protect domestic card transactions
In addition, banks will no longer be responsible for protecting your card information, nor will merchant apps, websites, payment processors like RazorPay, or banks. In conclusion, card tokenization is a technique the RBI developed to protect domestic card transactions by employing random strings of tokens rather than disclosing your personal card information. Go to the following section to learn how it functions.
How Does Card Tokenization Work?
The process of tokenizing cards is straightforward. When a card is chosen to be tokenized, the card network (such as Visa, MasterCard, etc.) issues the token with the bank’s approval and gives it to the retailer. As an illustration, if you save an SBI Visa debit card on Paytm in accordance with RBI’s requirements, Visa will create the token with SBI’s permission and share it with Paytm. Click on this link to discover a list of all Indian card networks that are approved.
A new token will be issued and shared with Amazon if you decide to save the same credit or debit card on another app, like Amazon. Depending on the merchant (also known as the requestor) and device, even for the same card, the token will vary. It indicates that the tokens are distinct and distinctive, which is advantageous in terms of security.
The Need for Card Tokenization in India
As was already indicated, the frequent data leaks, hacks, and breaches in the digital age compelled the RBI to develop card tokenization. Not to add that the various security standards used by apps, websites, payment processors, and other middlemen compromise our online security. The burden of security on middlemen and merchants will be removed by credit and debit card tokenization. It will also harmonise the security protocol used by all channels. Card tokenization will be extremely helpful in safeguarding credit and debit cards on the web because consumers are increasingly saving their card information on websites and applications for convenience.
RBI s Card Tokenization Policy: Pros and Cons
The benefits of card tokenization are numerous. To start, the merchant—whether it be an app or a website—will not have access to your card information. In addition, none of your personal card information will be accessible to payment processors or other parties. Your card transactions can be completed without worrying about card fraud thanks to a uniquely generated code.
Additionally, you can feel secure when saving cards on e-commerce websites knowing that the merchant only receives the token. Additionally, card networks assert that it will lessen fraudulent claims because card tokenization-enabled transactions will imply high-grade security.
As far as the end user is concerned, I don’t believe there are any drawbacks to card tokenization. The RBI recommendations must be implemented by merchants and payment processors, but aside from that, consumers win in this case.
What Changes for Customers?
It doesn’t affect consumers in any way. Yes, tokenizing your card through a bank or app doesn’t need you to go above and beyond. Go ahead and complete the transaction just like you would any other. In the pop-up that appears after checkout on apps like Amazon India, Zomato, Swiggy, Blinkit, and others, be sure to enable the Secure your card orSave as per RBI guidelinescheckbox. The token will be issued against your card as a result, and the merchant will automatically get it.
Your card information will no longer be saved on the merchant’s cloud server; instead, just the token, your name, and the card’s last four numbers will be kept there for end-user identification. You will now only need to input the CVV and OTP to authorise transactions. As you can see, card tokenization affects the payment infrastructure’s backend more so than the end user.
Why Do I Have to Re-enter Card Details for Each Transaction?
To be clear, if you opt to tokenize the card, you do not need to reenter card information for each transaction. Tokenization’s main goal is to provide a universally accepted level of security for saved cards on websites and mobile applications. With tokenization, card networks will store the saved cards (and not merchants). To identify and validate the card during a transaction, the merchant will only be given a token.
If you decide against tokenization, the card won’t be saved on the app or website because the RBI forbids businesses from keeping track of customer payment information. You would have to reenter your card information for each transaction in such a case. So to ensure a pleasant online transaction experience, tokenizing your card is advised.
Card Tokenization Rollout in India
Since 2019, the RBI has been working on card tokenization, and on January 1, 2022, it will come into effect. However, the RBI delayed the tokenization requirements to June 30, 2022 due to resistance from retailers and payment processors who feared disruption. The full implementation was later again delayed by RBI until July 31, 2022, and is now being done so until October 2022.
After delaying the implementation of card tokenization for many months, it appears that RBI is now fully prepared to enforce it. According to recent estimates, as of October 1, 2022, tokenizing your credit and debit cards will be required if you want to save card information on an app or website. Your card will be removed from the merchant’s systems if you don’t do this. You will now need to enter your card information again each time you make an online purchase.
Frequently Asked Questions (FAQ)
What does India’s Card Tokenization entail?
For online card transactions, Card Tokenization essentially replaces your actual card details with a token that is produced at random. It was designed to guard against hacks and online leaks of your card information.
What time period does card tokenization end in?
The current deadline for tokenizing cards is July 31, 2022. Your credit card information will thereafter be deleted from the merchant’s systems.
Is tokenizing your card required?
According to the RBI, tokenizing your card is still not required. Your credit and debit cards are up for tokenization at your discretion.
How are debit and credit cards tokenized?
The transaction will be automatically tokenized if you simply click the option next to Secure your card or Save card in accordance with RBI rules and finish the transaction on any app or website. Ensure that you use a mobile device or tablet to complete the transaction.
Is tokenizing cards subject to any fees?
No, tokenizing a card is not subject to any fees. You are free to repeat it as often as you like.
Why You Should Go For Card Tokenization in India?
This concludes our discussion of credit and debit card tokenization in India. I think the RBI made an incredible move to safeguard customers from internet scams and security breaches. This will significantly increase the safety of credit and debit cards online. That’s all we have to say, though. Visit our linked explainer to understand more about the RBI’s Digital Rupee project. Also, let us know in the comments section below if you have any queries.