What is credit and debit card tokenization? Why is it the need of the hour?

In response to feedback from industry organisations, the Reserve Bank of India (RBI) on June 24 extended the credit and debit card tokenization deadline by three months, to September 30, 2022. Card information that is saved by a payment gateway and a merchant in order to complete future purchases is known as "card-on-file," or CoF. The earlier cutoff date was June 30, 2022.

The RBI stated in a circular that several difficulties regarding the framework's implementation in relation to guest checkout transactions have been brought up by industry players. Additionally, not all types of merchants have adopted the use of tokenized transactions in a significant way.

What is credit and debit card tokenization?

Credit and debit card data is transferred millions of times daily throughout the payments industry. To complete each of these transactions, cardholder information and extra payment details are needed; this sensitive credit and debit card information needs to be protected in order to safeguard customers, retailers and banks.

Users must provide their card information, including the card number, name, expiration date, and three-digit CVV, each time they make an online payment with a debit or credit card. The platforms used by the merchant save these card details using masking and other security procedures.

Credit and debit card tokenization is the process of replacing sensitive data with a token, a randomly generated, one-of-a-kind placeholder, from the company's internal network. In order to provide a higher level of protection for both the customer and the business, this token is used to access, retrieve, and maintain a customer's credit and debit card information. This credit and debit card security precaution is being adopted by an increasing number of businesses nationwide. Many people think it's simple to use, safer than end-to-end encryption, and reasonably priced.

Why credit and debit card tokenization?

Since retailers retain card information, all consumers are at danger if their security procedures are weak. Debit and credit card information were exposed on merchant websites in a number of previous hacking incidents. Through card tokenization, the RBI plans to make things more secure.

Since the card won't need to be punched in for any purchases, card tokenization will facilitate transactions and speed up checkouts. Users are able to save a digital copy of their card on their smartphone thanks to card tokenization. Therefore, it is unnecessary to carry a physical card.

Many believe that credit and debit card tokenization is the need of the hour as this will revolutionize card security.