Tokenisation is a process that allows people to transact via a credit or debit card using a unique alternate card number or ‘Token’ instead of the 16 digits on the card. The process aims to isolate sensitive information from other recorded data to enhance online security and privacy during transactions. For this purpose, the Reserve Bank of India (RBI) has published guidelines requiring merchants to adopt the card-on-file (CoF) method instead of card data storage. In CoF, only a token corresponding to the card is stored on a merchant app or website. This process reduces the risk of data breaches and fraud. The guideline came into effect on January 1, 2022.

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Are Tokenised Card Payments Safer Than CVV Number?

Tokenization protects cardholders from cyber fraud by replacing card details with unique numbers or tokens. It allows faster checkouts and a limited role of the CVV. According to Visa Inc. removing CVV makes the payment experience faster and friction-free. Additionally, security tokens are considered secure, as hacking them wouldn’t be easy and time-consuming.

How Does Tokenisation Work?

Card tokenisation replaces the card numbers with a unique code or token number. When making a payment on a shopping web portal, users enter their card details and select ‘tokenisation’. The merchant forwards this information to their bank or card network, creating a token for future transactions. This process protects confidential information from cybercriminals, allowing users to select a saved token instead of entering their card details. Tokenisation reduces the risk of card fraud and improves security for both businesses and customers.

Benefits For Businesses

Card tokenisation is a secure method for businesses to store and transmit customer payment information, reducing the risk of data breaches and fraud. It ensures that merchants never store actual card details on their servers, ensuring PCI compliance. Card tokenisation also offers a convenient one-click payment experience, allowing customers to make payments without repeatedly entering their card details. It also facilitates hassle-free recurring billing, such as monthly subscriptions or instalment payments.

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The process enhances customer experience by providing a secure and frictionless payment process, fostering increased trust and loyalty. Additionally, card tokenisation allows businesses to accept various payment methods beyond credit and debit cards, including e-wallets, UPI, and mobile banking solutions. This variety of payment options attracts a wider range of customers and caters to their preferences.