Card Tokenisation: What is It?, Benefits and Challenges

GS Paper III Indian Economy

Context:

According to Visa’s report titled ‘Enabling the Digital Shift: Tokenisation in India’s Economic Landscape’, India has issued over 560 million tokens over the past year.

India issued a substantial portion of over 7.5 billion tokens issued globally, leading to card authorization rates rising by 4.5% since the introduction of tokenisation.
In September 2021, the RBI prohibited merchants from storing customer card details on their servers with effect from January 1, 2022, and mandated the adoption of tokenization as an alternative.

Reserve Bank of India (RBI) defines tokenisation as replacing actual card details (debit or credit cards) with an alternate code called the ‘token’, a unique combination of card, token requestor, and a device.
- Card tokenisation transaction is safe as the card details are not shared with anyone, including the merchant, during transaction processing.
- RBI has directed all sellers in India such as Amazon, Flipkart, Zomato, etc. to delete card information stored earlier to enhance the security of online transactions.
Token Issued By: A tokenised card will be issued by card networks like Visa, Mastercard, or Rupay.

Card Tokenisation

Benefits of Card Tokenisation:
- Enhanced security.
- Reduced risk of data breach.
- Increased trust in digital payments.
- Improved payment experience.
- Reduced fraud rates.
- Simplified compliance.
Challenges of Card Tokenisation:
- Customer education and awareness.
- Operational clarity of regulatory guidelines.
- Complex integration.