The Reserve Bank of India’s plans to move towards card tokenization are expected to impact a wide range of businesses, from large e-commerce companies and businesses delivering food to lenders, while increasing the use of cash. industry sources and bankers said.
RBI issued guidelines in March 2020 stating that merchants will not be allowed to save card information on their websites to strengthen data security. It released new guidelines in September 2021 giving businesses until the end of the year to comply with regulations and giving them the option to tokenize.
Tokenization is a process by which card details are replaced with a unique code or token, generated by an algorithm, allowing online purchases to be made without exposing card details, with the aim of improving the data security.
The RBI has ordered all Indian businesses to purge stored credit and debit card data from their systems as of January 1, 2022.
Merchants and bankers argue they haven’t had enough time to comply with the changes, while opting out of tokenization would mean a customer would have to manually enter their card details every time they make a transaction. buying online, which might discourage some customers.
“Introducing an extra step into payments adds friction and several studies show that customers can end up giving up on discretionary purchases,” said Sijo Kuruvilla George, who heads the New Delhi-based think tank. Alliance of Digital India Foundation, which represents Indian startups.
“We estimate the loss of income of around 20 to 40% for traders, with small businesses hit the hardest,” he added.
Meanwhile, senior executives at public banks and private lenders have said they fear the move could lead to a sharp drop in card transactions and an increase in short-term cash payments, undoing years of work by creditors. lenders and government to drive digitization. .
“Not all banks will be ready by January and even if they are, it’s likely that to avoid the inconvenience, customers can opt for one-step cash on delivery, instead of entering details,” said a prominent banker. Indian lender, who asked not to be named because he is not authorized to speak to the media.
“So not only will card transactions decrease, but cash in circulation will also increase, which is another concern. “
Credit card transactions in India crossed the Rs. 100,000 crore mark in October, while other digital payment methods have also seen a sharp increase over the years.
The industry is still awaiting clarification on how cashback programs and monthly payout-type card purchases work and has asked the central bank for more clarity and time, said an executive at an internet company, who asked not to be named as information. is not public.
“The RBI expects the whole industry to move on to tokenization, full testing, advance in less than four months, this is a very extreme demand from the industry,” added the executive.
The RBI did not immediately respond to an email seeking comment on the case. Companies such as Amazon, Walmart’s Flipkart and Indian food delivery company Zomato, which are likely to be affected, also did not immediately respond to a request for comment.
Industry executives say that while some card networks, banks, and merchants are ready, ensuring processes are fully integrated system-wide and transparent can take months.
“It can take about six to nine more months for the entire ecosystem to be fully ready,” said Manas Mishra, chief product officer for payments company PayU.
© Thomson Reuters 2021