The Reserve Bank of India’s plans to move to card tokenization are likely to affect a wide range of businesses, from major e-commerce and food delivery companies to lenders, as cash usage increases, industry sources and bankers said. .
RBI issued guidelines in March 2020 stating that merchants should not store card information on their websites to improve data security. It issued new guidelines in September 2021, allowing companies to comply with regulations until the end of the year and giving them the option to tokenize.
Tokenization is a process of replacing card data with a unique code or token generated by an algorithm, allowing online purchases to be made without exposing card details, in an effort to improve data security.
The RBI has ordered all businesses in India to remove stored credit and debit card information from their systems from January 1, 2022.
Merchants and bankers argue that they have not been given enough time to comply with the changes, while opting out of tokenization would mean that a customer would have to manually enter their card details each time they complete an online purchase, which could put some customers off.
“The introduction of an additional payment step is creating friction and several studies show that customers may drop out in the event of a discretionary purchase,” said Sijo Kuruvilla George, head of the New Delhi-based think tank Alliance of Digital India Foundation, which represents Indian startups.
“We estimate the loss of revenue of about 20-40% for merchants, with the smaller businesses more adversely affected,” he added.
Meanwhile, senior executives from state-owned banks and private lenders said they are concerned the move will lead to a marked decline in card transactions and an increase in cash payments in the near term, spurring years of work by lenders and the government to drive digitalization. will be undone. .
“Not all banks will be ready by January and even if they are, it is likely that to avoid any inconvenience, customers will be able to opt for a one-step COD delivery instead of keying in details,” said a banker with a leading Indian lender, who does not want to be named because he is not authorized to speak to the media.
“So not only will card transactions decrease, but the money in circulation will also increase, which is another concern.”
Credit card transactions in India crossed the 1 trillion rupees ($13.13 billion) mark in October, while other forms of digital payments have also seen a surge over the years.
The industry is still awaiting clarity on how cashback schemes and card purchases with monthly installments will 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 if the information is not available. public.
“The RBI expects the entire industry to move to tokenization, full testing and progress in less than four months, which is a very extreme demand from the industry,” the executive added.
The RBI did not immediately respond to an email requesting comment. 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.
Business leaders say that even if certain card networks, banks and merchants are ready, it could take months to ensure processes are fully integrated system-wide and seamless.
“It could take about six to nine months for the entire ecosystem to be fully ready,” said Manas Mishra, chief product officer at payment company PayU.