The Reserve Bank of India has plans to move towards card tokenisation. This will hit a broad range of companies from major e-commerce companies, food delivery companies, and lenders; this will lead to increased use of cash, said Industry sources and bankers.
RBI had issued guidelines in March 2020 saying that merchants who are selling items online will not be allowed to save card information on their website for data security reasons. They issued fresh guidelines in September 2021 giving different companies a deadline until the end of the year to comply with the regulations. The RBI also offered them an option to tokenise.
What is Tokenisation?
It is a process by which your card details are replaced by a token generated by an algorithm. This token allows you to do multiple purchases without exposing your card details, to improve data security.
The RBI has given a deadline till January 1, 2022, to discard all debit and credit card details from their systems. Online businesses and e-commerce websites argued that the deadline is too short to comply with the regulation. They also argued that tokenisation would mean a customer will have to manually put their card details each time they want to do an online transaction that can be troublesome for customers.
“Introducing an additional step in payments adds friction and several studies show that customers may end up dropping out in case of a discretionary purchase,” said Sijo Kuruvilla George, who heads the New Delhi-based think-tank Alliance of Digital India Foundation, which represents Indian startups.
“We estimate revenue losses of about 20-40 per cent for merchants, with the smaller firms being more adversely impacted,” he added.
However, senior executives of government banks and private lenders said that this decision will lead to a decline in card transactions and an increase in cash payments in the short-term, undoing years of hard work by online brands and the government to boost digitization.
But, we must not forget that card payment is not the only method of online transactions, there are 2 other types of transactions that customers can opt for if their card details are not saved in online platforms anymore i.e. UPI and Net Banking, so maybe the efforts might not go in vain completely.
“Not all banks are going to be ready by January and even if they are, it is likely that to avoid inconvenience, customers may opt for a one-step cash on delivery, instead of keying in details,” said a banker with a leading Indian lender, who asked not to be named because he is not authorised to speak to the media.
This statement again brings back to the question that if customers are not given an option of card payments, they can always opt for other alternatives that are digital as well.
For more breaking news, click here.