WHAT IS CARD TOKENIZATION?
ALL YOU NEED TO KNOW
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.
Why is card tokenization relevant now?
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.
What is card tokenization?
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.
Where can card tokenization be used?
Card tokenization finds use in the following scenarios:
- All online shopping platforms
- App purchasing platforms
- Contactless card transactions
- QR code payments
- Digital wallets
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.
Tokenization v.s encryption: What is the difference?
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.
Types of card tokenization
- Vaultless tokenization
In simple terms, vaultless tokenization does not require a vault for storing the original card details. The data is stored with the help of an algorithm. - Vault tokenization
Here, the sensitive details are stored in a vault known as the token vault - a protected database to hold both sensitive and non-sensitive details.
How does card tokenization for payments work?
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.
How can I tokenize my card?
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:
- Step:1
- Go to your favorite e-commerce/grocery/food delivery/bill payment website/app.
- Step:2
- Once you are done with your purchase, select the card option for payment and enter your card details.
- Step:3
- To save the card details for a quicker checkout process, one can choose the option - ‘’secure your card details as per RBI guidelines”. This will allow you to generate a random token and store it instead of your sensitive card details.
- Step:4
- The card issuer company will then send an OTP (One Time Password) on either one’s registered mobile number or email address.
- Step:5
- The OTP is required to be entered on the merchant site/app, upon which the card details will be sent for token generation and for authorizing the transaction. The token that is generated is sent to the merchant site which then stores it against one’s customer identification data like phone number or email address.
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.
Whom should I contact if there are issues with my tokenized card?
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.
Who can perform card tokenization?
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.
Is card tokenization mandatory?
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.
Card tokenization benefits
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:
The purpose of tokenization is to offer additional protection to customer’s sensitive details. It also provides a trustworthy platform for merchants to prevent data leaks or thefts.
An individual’s card details are converted into tokens and stored on the merchant’s site. Each merchant website/app generates a unique token for the customer’s card details. While the token is generated, the sensitive details are either stored in a token vault or an algorithm. This makes it almost impossible for data breaches to occur.
Usually handling sensitive data is a risky task for many organizations. Not to mention, it can also be an exhaustive and costly process. However, with the use of tokens, there doesn't arise the need for additional measures for shielding the data as the token itself is the most dependable form of storing data. This is because vulnerable data is stored outside of the internal system of the merchant. It prevents data theft even if the internal systems are compromised.
Customers mostly look for convenience. The faster a transaction gets completed, the happier the customer. But most customers are wary of the risks associated with online transactions which makes them concerned about sharing or saving their card details on payment gateways. Card tokenization is a great solution to this problem as it offers both simplicity and protection, increasing customer confidence in utilizing payment gateways for transactions.
The PCI DSS is an authoritative entity that requires organizations to maintain a certain level of security when handling the data of card holders. Since tokens offer advanced levels of security, organizations can easily meet the level of standards set by PCI DSS.
What are the challenges of card tokenization?
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:
Reaction to RBI’s card tokenization policy
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.
The final verdict on tokenization
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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