RBI Extends Card Tokenization Deadline by Another 6 months

Just a week before the card tokenization norms were to take effect for all online card transactions, the RBI has decided to put off the implementation by 6 months. Now, instead of 01st January 2022, the new norms for card tokenization will be applicable from 01st July 2022. This should hopefully give the banks and merchants more time to adapt.

Card on File (COF) tokenization was devised as a more secure way of sharing data while transacting online at various websites. In the current system, the merchant website like Flipkart or Amazon is allowed to store basic card information like card number and expiry date for future use.

However, such transactions still have to be authenticated by the user with CVV number and the OTP password sent to the registered mobile. By saving the basic details of the card on the merchant site, the processing of transactions became much quicker and simpler. This enabled faster transactions and was helpful to the customers and to the merchants.
However, RBI had been uncomfortable with the practice of storing customer information on the merchant website. This could expose the customers to the risk of mass hacking of data and we had seen several such instances even on global websites recently, where millions of people had their card details compromised.

To address this issue the RBI had come with the COF model wherein the customer data would be stored in the form of tokens so that there would be no way for anybody to link the data with the customer. This would ensure an additional tier of safety. However, that is now being postponed by 6 months due to practical constraints.

The Merchants Payment Alliance of India (MPAI) had asked the RBI to give 6 more months for a smooth transition. It also pointed out that the new COF system would require readiness and preparedness from banks, card networks, payment gateways and payment aggregators. They felt that at this point it would be too much of a risk.

For the RBI, the consideration was more pragmatic. India has an estimated 98.50 crore cards and these cards execute nearly 15 million transactions on a daily basis with daily volumes of Rs.4,000 crore. Any disruption due to the new COF would result in a major loss of faith in the digital system of payments, something the government has been working hard to push.

The recent Omicron wave may have also induced this decision. With the likelihood of more lockdowns due to Omicron, there could be greater reliance on digital payments and it would be too much of a risk introducing a new layer in the system at this point of time. 

Also merchants have been apprehensive that this move would temporarily lead to a 20-30% fall in business volumes. Status quo for six months was a better choice.

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