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What is tokenisation and why has RBI issued new guidelines?

GS Paper 3:

Topics Covered: Inclusive growth and issues arising out of it.



The Reserve Bank of India has extended the implementation date of card-on-file (CoF) tokenisation norms by six months to June 30, 2022.

  • As per new guidelines, online players will have to delete any credit and debit card data stored on their platforms and replace them with token to secure card details of consumers.


Why did the stakeholders want an extension?

While most of the leading banks including SBI, HDFC Bank and ICICI Bank are ready for the switchover, other stakeholders — mostly merchants — argue that the systems at their backend are not yet ready to adopt the new regime and had sought further time in putting new norms into effect.

  • If implemented in the present state of readiness, the new mandate could cause major disruptions and loss of revenue, especially for merchants.
  • Disruptions of this nature erode trust in digital payments and reverses consumer habits back towards cash-based payments.


What is tokenisation?

Tokenisation refers to replacement of actual credit and debit card details with an alternate code called the “token”, which will be unique for a combination of card, token requestor and device.

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  • A tokenised card transaction is considered safer as the actual card details are not shared with the merchant during transaction processing.
  • Customers who do not have the tokenisation facility will have to key in their name, 16-digit card number, expiry date and CVV each time they order something online. This could be cumbersome exercise.


Three steps have to be completed for smooth implementation of tokenization:

  1. Token provisioning: the consumer’s card number should be convertible into a token, which means the card networks have to be ready with the relevant infrastructure.
  2. Token processing: Consumers should be able to complete their transaction successfully through the tokens.
  3. Scale-up for multiple use cases: Consumer should be able to use the token for things like refunds, EMIs, recurring payments, offers, promotions, guest checkouts etc.

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Sources: Indian Express.