The financial world has been buzzing with a new term - tokenization. Ever since the RBI (Reserve Bank Of India) introduced this new concept on Oct 1, 2022, there has been a lot of talk surrounding it. With tokenization coming into effect, here’s everything you need to know about it.
With more and more people increasingly opting for online transactions, it is all the more necessary that tokenization needs implementation. Card details stored on several merchant websites/applications have been subject to hacking in several incidents in the past. By implementing tokenization, RBI intends to eliminate the risks of data theft. Besides offering enhanced security to customers, card tokenization enables customers to perform faster and smoother transactions. Cardholders also have the opportunity to carry a digital copy of their cards in the form of unique tokens.
According to RBI, card tokenization means the process of replacing an individual’s card details with a code known as a token. It implies that card details like the card number, expiry date, and CVV (Card Verification Value) gets replaced by a random alternate number (token). The original card details are stored safely outside of the internal system used by a merchant. Also, the tokens generated cannot be reversed, meaning the tokens cannot be decrypted to obtain card details if the payment system is hacked. This would help one process payments without the worry of being subjected to financial fraud.
Card tokenization finds use in the following scenarios:
It is also worth noting that the card tokenization feature is compatible with devices such as smartphones, tablets, wearables, desktops, and IoT (Internet of Things) devices.
Both tokenization and encryption are methods for protecting sensitive data while it gets transmitted across the internet. These two terminologies may sound similar but they cannot be used interchangeably. The primary difference between these two methods is that while tokenization uses an irreversible token, encryption uses a secret key that can be reversed to store data. While tokens do not need additional protection, encrypted data needs proper safeguarding.
Let’s find out with the help of an example.
Customer X is using their credit card to process an online payment. X’s card details are substituted with a randomly generated custom number (token) by the merchant’s payment gateway. The token is then encrypted and sent to a payment processor. The original card details are decrypted and stored securely in a token vault inside the merchant’s payment gateway. The token is then again encrypted before being sent for final verification.
With the advent of tokenization, the merchant’s database will only be able to store the last four digits of a card. It is the only way for the customer to recognize their card details on the payment gateway during the next purchase.
Even though tokenization might seem like a complicated process, in reality, it isn't. Similarly, a debit/credit card tokenization for payments can be done in a few simple steps.
Follow the steps below to tokenize your card easily:
Once a card is tokenized, the original card details are guarded by the RBI-authorized card issuing networks. Merchants are not permitted to store these sensitive data, thus safeguarding customer’s card details.
Each merchant website/app on which you have stored your card details will have a different token. The process of card tokenization does not require one to pay additional charges. The customer is also permitted to tokenize any number of cards on any number of devices.
If one is facing issues with a tokenized card, they need to contact their respective card issuers. Sometimes a card issuer can refuse tokenization of a particular card issued by them due to certain risks associated with that card.
Tokenization for payments can be done only by RBI-authorized card networks. The list of card networks that have been authorized can be found on the official website of the RBI: www.rbi.org.in
Normally, the participants in a tokenized transaction are the merchant, the merchant’s acquirer, the payment network, token requestor, card issuer, and the customer.
Card tokenization hasn't been made mandatory by the RBI. It all depends upon the individual on whether they wish to get their card tokenized or not.
Protecting sensitive customer information like card details, bank details, etc. has always been a cause of concern. One of the main intentions of RBI with the introduction of card tokenization is to ensure that the original card details are not shared with a merchant website/app during online transactions.
Some of the other card tokenization benefits are as follows:
Normally, the participants in a tokenized transaction are the merchant, the merchant’s acquirer, the payment network, token requestor, card issuer, and the customer. Like everything else, card tokenization has a few challenges too despite the many benefits that it offers. Some of the main challenges of card tokenization are:
The mandatory deadline set by RBI to complete card tokenization was by September 30, 2022. This deadline was extended multiple times over the past two years due to requests by several stakeholders as they were unprepared to implement tokenization in full swing. This deadline extension was also provided as a result of increasing consumer awareness regarding card tokenization.
Despite several large-scale merchants implying their readiness to take up tokenization, some are apprehensive about the challenges that are likely to arise during its initial implementation. Similarly, small merchants who do not have sufficient resources at their disposal may face hiccups in implementing the tokenization system.
Some industry groupings like the Merchant’s Payments Alliance of India (MPAI) had raised concerns regarding the absence of token synchronicity which is yet to be resolved. Along with it, issues like increased time for token generation, identity management of card holders for preventing fraudulent activities, and recurring payment mandates were also cited.
Nevertheless, the industry as a whole is welcoming tokenization on a positive note and experts are regarding tokenization as the technology that is set to revolutionize the future of secure transactions.
Currently, digital transactions are a favorite with a majority of the population for shopping, entertainment, and bill payments. For a faster and smoother transaction experience, many of them opt to save their card details in merchant sites/apps. However, the risk factor associated with saving such information is also high along with convenience. These saved details are highly prone to cyber attacks. Hence, it is all the more important to guard them in the most effective manner possible.
Card tokenization is a safer, smoother, and well-shielded technology that offers the highest level of security to one’s data. It is an innovative technology that has the potential to change how sensitive data is stored and managed. As endorsed by the RBI, tokenization is indeed a huge step towards making digital payments a reliable and relaxed experience.
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