Tokenisation to catalyze India’s rapidly growing digital payment landscape  

There has been tremendous growth in the acceptance of digital payments with the emergence of the pandemic. Demand for digital services skyrocketed during the pandemic across the world. Data shows that digital payments in India increased five-fold by 33% year – on- year (YoY) during the financial year 2021-2022.

A recent study by ACI Worldwide and YouGov highlights that digital payments continue to govern the payment space in India, with 41 percent of consumers opting it as preferred transaction system, way ahead of cash which is 26 percent.

Another study by FIS reiterates that this surge in digital payments can largely be attributed to increased spending in e-commerce, which is projected to grow by 84% to $111 billion by 2024.  

While this rapid shift to online commerce brought convenience and seamless experience for consumers however an unprepared cyber security environment led to unparalleled spike in data theft and online frauds across geographies.

This has compelled the regulator to put checks and balances to address the issue of cybercrime and financial frauds. The Reserve Bank of India (RBI) has come up with card-on-file tokenisation framework that aims to safeguard the interests of both consumers and merchants in the country. As per RBI guidelines, no entity in the card transaction or payment chain, other than the card issuers and/ or card networks, shall store the actual card data. Consumers will have to enter their details one time to convert them into tokens as part of the transaction flow. Moreover, it gives Additional Factor of Authentication (AFA) consent option to consumers, who are using their card details for the first time on e-commerce apps or websites

Card-on-file tokenisation replaces the sensitive payment credentials such as names, expiry dates and codes with unique digital tokens – randomized string of characters. It prevents individuals and institutions in the transaction value chain from collating and keeping consumers’ card details or allowing the issuer banks and card networks to preserve the data.

Using a ‘tokenized’ card is much safer as consumer details are not stored with the merchant during the transaction. Using tokens for digital transactions renders most data breaches meaningless.

The rapid shift to digital transactions or online payment requires security, stability, and reliability alongside convenience and speed. Thus, tokenisation is essential in this direction, as it will help reaffirm consumers’ faith in online transactions and build trust of millions of mobile-first users across the country.

It shields businesses from data breach, acts as the protective layer in the digitized payment ecosystem by encrypting the card details and safeguarding both consumers and merchants against cyberattacks. Use of tokens bring convenience for the consumers while continuing to benefit from the rewards on existing debit and credit cards and without compromising on the safety and security.  It also allows for recurring payments in a protected environment.

The card-on-file tokenisation services will also expand the safer digital payment infrastructure and build confidence in acceptance of digital payments among small businesses many of whom recently shifted online in the wake of Covid to stay afloat in business and meet consumers’ demands. Tokenisation will help businesses receive payments without storing any sensitive customer data in the merchants’ environment and will protect their business from the negative impacts of a data theft and prevent from any revenue loss.

With online spending becoming increasingly important in our daily existence, going forward, we are certain that the tokenisation framework will help safeguard card-based digital payments while ensuring a seamless and convenient way to pay for millions of debit and credit card users in the country. It will not only offer enhanced payment security measures and friction-less checkout for consumers but will also lead to increased consumer trust in online transactions, which will further bolster digital adoption and facilitate the growth of the digital economy.