With an intent to protect an estimated five million customers interest, who have stored their details for online transactions on various e-commerce platforms. RBI has issued a payment guidelines on tokenization that would commence from 1st July, 2022. On September 7,2021 RBI issued a circular that imposed restrictions on any entity other than card issuers and networks to store the sensitive data of one's card.
Tokenization is an act of making data storage safer by not storing the actual data . Tokenization takes a sensitive data for example your 16 digit card number and randomises it , through tokenization one's sensitive data will be stored in something called a token vault. Tokenization is viewed as a safer alternative because after tokenization one's card details will not be revealed to the merchant, currently one's card details are stored online in cloud system by the merchants with an encryption thus making it available for all ill intention people and fraudulents . With tokenization one cannot get back to the original value but in case of encryption one can get back to the original value through decryption. Even if somebody attempts to steal one's token and succeeds in that, it will be a futile attempt because the stolen data is basically a surrogate data.
According to a global survey conducted by financial services of technology firm, Indians are among the most frequent victims of online frauds and as a result lose a lot of money. Adapting to tokenization is completely optional for a customer but it is a mandate for business, merchant bodies and e - commerce apps to discard previously stored data and provide an option to move to tokenization. The customers who decides to stick back to their original payment method, will have to enter complete card details every time they make a payment unlike the earlier process of just entering the CVV number and OTP.
But there are some obstacles in adapting to this change. Experts are of the opinion that small e- commerce platform might take time to adapt to this new feature because implementation of tokenization needs investment. It is also estimated that online merchants can lose upto 20%-40% of their revenue. Since token is unique for each combination of card, token requestor and even for devices most people might find it inconvenient to request for a token every time they switch to new phones, wearables like wristwatch and laptops or computers. Though both customer and provider are struggling to adapt to this new payment method, RBI is of opinion that it will achieve it's purpose of protecting customer interest by providing them more secure payment method.
