Recently, the Reserve Bank of India came up with a new concept of Tokenization. There will be a huge change in digital payments. We perform an online transaction to purchase products online. The way we perform these transactions will change due to tokenization.
Reserve Bank of India has released guidelines for tokenization and given approval to debit/credit card service providers like VISA, Mastercard etc for its implementation. Though it is not mandatory for these companies to bring tokenization, it is an optional decision.
Let us learn, how an online transaction is performed (without tokenization)?
Suppose you are willing to purchase a product online from a shopping website, say Flipkart. To perform an online transaction, you should have a debit/credit card to pay on the website. We follow the following process to perform an online transaction:
- Enter Debit card details on the shopping website like debit card number, expiry date, cardholders name, CVV etc.
- After entering details, VISA gateway will generate and sent an OTP on your mobile number. This is done to ensure the authenticity of the transaction and that the cardholder is placing the order. This is a safety measure.
- Once you enter the OTP on the gateway, the transaction gets the authentication that the payment is okay and the transaction is performed by the cardholder.
- Finally, the payment gets deducted from your bank account and you’ll receive the product at the shipping address.
When you perform these steps to make payment, the shopping website saves your card details. This is done to make your future transactions easy and quick such that if you wish to purchase another product online then your card details are already their (saved) on the website and you just need to enter the OTP to authenticate the transaction. There will be no threat to your card, it cannot be misused as it requires OTP authentication. Although, if these shopping websites get hacked, the hacker can get access to your card details. This does not mean that he/she will be able to withdraw money from your bank but they can definitely misuse your online identity. Basically, while making an online transaction there is a possibility that hackers can get access to your card details (but they can not get access to your bank account or money due to OTP safety measure).
To put an end to the possibility of data theft, the Reserve Bank of India (RBI) has introduced “Tokenization” system.
Now, let us understand how tokenization will prevent data theft?
Tokenization system will replace your card details with a token number and shopping websites will store your token number instead of the card details.
How will website store token number instead of card details?
- While making an online payment, you’ll have to enter card details on the shopping website.
- Once you’ll enter card details, the service provider like VISA, MasterCard etc will generate and send a token number for your card on your registered mobile number.
- Token Number will be alphanumeric. You’ll enter this token number on the shopping website.
- Shopping websites will now store this token number instead of the card details.
- There will be a unique token number for each transaction.
Hence, the shopping websites will store your token number instead of card details so that your data is safe and the token number will keep on changing on each transaction like an OTP so that transactions are safe and authenticate.
When will tokenization system start?
The Reserve Bank of India (RBI) has released guidelines for the tokenization system. Now, the service providers like VISA, MasterCard etc. will coordinate with the banks as well as the merchant i.e. various shopping websites. After their coordination, a system will be set up for the tokenization system. Also, India is not the first country to develop the tokenization system. There are approx 50 other developed countries who already follow this system for digital payments. India may take a little longer to bring the system of tokenization in India. It may take days, weeks or a few months but soon you’ll be able to perform online transactions using tokenization method.
How will the tokenization system benefit an individual and country?
- Your digital payments will be more secure.
- Your bank and card details will be safer.
- Digital Payments will increase in the country. There are people who are not willing to share their card details online so they prefer either shopping offline or paying offline. After tokenization, it is expected that there will be an increase in online payments.
- Hacker target people perform transactions involving huge amounts. They are more open to data theft. Once tokenization will be launched, they’ll feel more secure and prefer digital payments.
Tokenization is a preventive measure of data theft. Tokenization is considered one of the best and business-friendly practices, globally.
Tokenization System – a good move taken by Reserve Bank of India!