- The RBI in September announced that online merchants will have to tokenize the card information of their customers, by December 31.
- Merchants and stakeholders expressed concern over this as they have insufficient time to implement the changes from the backend.
- They hope that the deadline is extended, otherwise, it will cause disruptions for up to one year and impact over 5 million customers.
- An increase in cash and UPI transactions is expected during this period.
After December 31, online merchants will not be able to store card information of users and will have to replace each card number with a randomized token number, industry body CII (The Confederation of Indian Industry) said on Wednesday. This will cause a 20 to 40% loss to their revenue.
The RBI’sdiktat on tokenization takes effect on January 1. Ecommerce and online service providers are bracing for it. They will have to delete any credit and debit card data stored on their platforms and replace them with a surrogate code or ‘token’ to secure card details of consumers. This measure was announced by the RBI in September to protect cardholders from fraud.
Merchants, card providers, payment gateways, banks, and other stakeholders say that there hasn’t been enough time to make the required changes in the backend.
This was brought out at a virtual session on ‘Digital Payments and the India MediaConsumer’ which was organized by CII’s Media and Entertainment Committee. The aim of the session was to bring to light the problems consumers were going to face from next year due to the RBI deadline of December 31 for tokenization,
CII said in a statement. “Online merchants can lose up to 20-40% of their revenues post 31 December, and for many of them, especially smaller ones, this would sound the death knell, causing them to shut shop,” it added.
Sijo Kuruvilla George, executive director of Alliance of Digital India Foundation (ADIF), said merchants will lose out in this process for no fault of theirs and they cannot create tokenisation infrastructure under the RBI rules.
Tech integration, loss of revenue and customer education were squarely falling on the merchant, and they had no time to do it all because of a lack of upstream readiness or commitment in the matter, he added.
India has an estimated 98.5 crore cards, which are used for about 1.5 crore daily transactions worth Rs 4,000 crore, CII said. The value of the Indian digital payments industry in 2020-21, as per the RBI’s annual report, was Rs 14,14,85,173 crore, it said adding that digital payments have triggered and sustained economic growth, especially through the trying times of the pandemic. While the Reserve Bank of India’s (RBI) intent is to protect consumer interest, the challenge on the ground pertains to implementation, it added.
For a tokenisation solution to be consumer-ready (i.e. for consumers to be able to complete transactions successfully using tokens instead of their card information), the solution should have completed three steps, which include token provisioning, token processing, and scaling up for multiple use cases, CII said.
“However, India is nowhere near having completed these three steps, and rushing through with tokenisation without adequate system preparedness is going to have a negative impact on transactions,” it said.
In the initial stages, it is expected that card transactions will reduce, at the same time, there will be an increase in UPI as well as cash transactions. About 5 million customers are expected to get impacted by this move. This may also hit the equated monthly instalments (EMIs) that customers pay through stored cards for purchases.
If the RBI does not extend the deadline, it will cause disruptions for nine months to one year. Some banks have started alerting cardholders of the impending changes.
