As the adoption of digital and cashless transactions continues to gain momentum, several important considerations often arise pertaining to the security of payments. These considerations usually involve both customers as well as merchants. The Reserve bank of India (RBI)’s recently announced guidelines on the tokenisation of card payments is, a great step forward for India’s burgeoning digital economy.
In its guidelines which the RBI announced on 9 January, 2019, the central bank has allowed card payment networks like Visa, MasterCard, and India’s RuPay, among others, to offer tokenisation services to their customers for credit, debit, and prepaid cards.
Tokenisation and its benefits
Tokenisation is a process aimed at increasing the security and safety of payment systems by replacing the card details with a unique alternate payment ID or code termed as a ‘token’. The code is unique for every card combination or party requesting a token, like an m-commerce app, for instance, and can be accessed through mobile devices like smartphones and tablets.
In place of the details like the card number, expiry date, PIN, etc., this token can be used to carry out online monetary transactions, or make payments using point of sale (POS) terminals or Quick Response (QR) codes at merchant establishments.
Representational image. Reuters
Most digitally-savvy consumers today have multiple e-commerce apps and digital wallets on their phones and usually save their card details on them for faster and easier transactions. But this also exposes their card details to various other companies whose servers it is stored on, as a result of which the risk of data theft increases considerably.
A dynamic component like a token to authenticate every transaction integrates the security of a physical EMV chip with non-card payment systems powered by the internet, mobile devices, and proximity, making transactions involving cards more secure than ever.
As a result, while it will protect consumers from the threat of frauds, merchants will be able to transact more securely, benefit from faster checkout experiences, and target additional sales channels with new ways of accepting payments.
More importantly, tokenisation promises to entirely eliminate the anxieties of losing one’s card, and get more Indians on board to use cashless/digital transaction methods.
Consumers also stand to benefit from tokenisation in several ways. Besides being able to make contactless payments using payment links generated on their mobile devices, the tokenisation service is likely to spur more creative ways for customers to make, and for merchants to accept payments anytime and anywhere.
For instance, when a consumer gives his/her phone number to a merchant, the merchant can directly generate a payment link for the customer using his/her own application. This ensures a seamless and swift transaction, along with greater convenience for the consumer to pay for a variety of services.
Moreover, by empowering retailers with advanced payment mechanisms powered by the Aadhaar-enabled Payment Systems infrastructure, tokenisation can also enable individuals to access banking and financial services in their locality and forego cash usage.
Tokenisation has the ability to create limited permission for a specific amount or range of amount, time duration, and purpose. Moreover, it has the potential to reduce the high costs involved with managing card and POS machines for merchants, as well as the operational expenses incurred by banks.
With all the right security mechanism in place, the, merchants and retailers can ensure a successful implementation of this new system by building differentiated use cases along with delivering superior user experiences.
(The writer is Founder & CEO, PayNearby , a fintech startup under DIPP program)