The popularity of credit and debit cards has seen a significant surge in recent times. A major driving factor behind this surge is the enticing rewards and cashback offers provided by card issuers. However, as the usage of these cards continues to grow, there has been a noticeable increase in fraud-related activities associated with them.
Recognizing the potential risks, the Reserve Bank of India (RBI) has decided to bring about changes to enhance transactional security. After a meeting of the Monetary Policy Committee, the RBI introduced a new system called ‘Card Tokenization’.
Understanding Card Tokenization
Card Tokenization is a security measure designed to protect sensitive cardholder information, such as the card number, expiry date, and CVV. Through this process, the traditional 16-digit card number is replaced with a unique alternative number or ‘token’. This token is unique for each card, token requester, and device.
Benefits of Card Tokenization
One of the main advantages of card tokenization is that it allows cardholders to link their accounts directly with different e-commerce platforms. Currently, generating a “card on file” token can only be done on a merchant’s application or website. However, there are ongoing discussions to enable banks to issue tokens as well.
Card Tokenization’s Inception
The Card-on-File Tokenization (CoFT) system was launched on October 1, 2022. According to the RBI, since its inception, more than 560 million tokens, worth 5 trillion rupees, have been issued. Before this system was in place, cardholders had to enter their card details every time they made a purchase on platforms like Flipkart, Amazon, and other e-commerce sites, potentially compromising their security. Now, with the convenience of tokenization, transactions are made through tokens. This not only amplifies security but also saves time for the user.
