Push for card tokenization by RBI likely to impact merchants and lenders

RBI’s push for card tokenization can have impact on a wide range of companies from e-commerce firms and food delivery companies to lenders. The central bank had issued guidelines in March 2020 stating that merchants will not be allowed to save card information on their websites to boost data security.

The RBI in its fresh guidelines on September 2021 gave companies till the end of year to comply with the regulations. It offered them the option of tokenization. It is a process by whereby a unique code or a token replaces card details. The token or code is generated by an algorithm. This allows online purchases, without exposing card details.

However, industry players argue that they have not been given enough time to comply with the new regulation. They say opting for tokenization means a customer would need to manually key in their card details every time they complete an online purchase. And this would put off some customers.

Sijo Kuruvilla George, head of Alliance of Digital India Foundation, says introducing an additional step in payments adds friction. “Several studies show that customers may end up dropping out in case of a discretionary purchase,” he highlighted. “We estimate revenue losses of about 20-40% for merchants, with the smaller firms being more adversely impacted.”

A banker said not all banks will be ready by January. “Even if they are, it is likely that to avoid inconvenience, customers may opt for one-step cash on delivery, instead of keying in details. So not only will card transactions decline, but cash in circulation will also go up, which is another concern.” The executive pointed out that the industry is still waiting for clarity on how cash back schemes and monthly-installment type card purchases will work. The industry has asked the RBI for more clarity on the same.

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The banker added that the central bank expects the entire industry to come on to tokenization, and described it as very extreme. Furthermore, industry executives said the processes are fully integrated system-wide, are seamless and can take months.