RBI’s Tokenization Expected to Hit eCommerce on Jan 1; 5 Million Customers May Impacted

eCommerce and online service providers may expect to hit eCommerce disruption on January 1 as Reserve Bank of India (RBI) diktat on tokenization will be applicable in the market. It concerns deleting any credit and debit card data stored on their platforms and replacing it with a surrogate code or ‘token’ to secure consumers' card details. However, banks, payment gateways, card providers, and other stakeholders complain of not having enough time to make the needed backend changes. The steps are aimed at protecting card holders from online fraud.

Millions of Customers Get Impacted

Commenting on the development, a top eCommerce company senior executive said, “The move will leave customers wondering about the payments through card and transactions are expected to go down significantly. Resultantly, many customers will switch to UPI-based payments or adopt cash-based delivery modes on purchases.”

Interestingly, around 5 million frequent online shoppers in the country are the biggest hit from this step as they depend highly on storing their card details with service providers. “They are the cream of the digital transacting customers of India.” he cited.

The change is likely to hit equated monthly instalments (EMIs) that customers avail on buying several products or likely to impact the option of buy-now-pay-later options to process refunds. “It is difficult for people to accept,” said the head of an online retailer, who chose to be anonymous. “The step is ideally for pushing customers to use UPI for products like fashion where the average selling price is ₹1,200," he added.

Reportedly, the RBI is not extending the deadline, causing disruptions that could stretch nine odd months to a year before every card is tokenised, according to executives from different online retail companies.

A Measure to Counter Hacking & Fraud Risks

The RBI believes that storing card details on online platforms is the easiest way to attract online frauds and hacks; therefore, in September, the bank issued a circular regarding tokenization of the card companies. The bank instructed two-factor authorization as a measure to counter card cheats.

When contacted, most of the companies declined to comment on the issues, including Zomato, Flipkart, Blinkit, Amazon, PAytm, Swiggy, and TataCliq.

The Option Ahead

According to the new regulation, the customers will get two options from January 1; either to opt to key with the 16-digit card number, name, CVV, and expiry date on every purchase, which may not be done through the mobile phone, or they can go through a tokenization process, a one-time exercise for each merchant or platform. The token will depict a person’s card and screen out the actual number. In the case of multiple cards, each will need to be tokenized.

As the implementation time is around the corner, everyone, including eCommerce companies, banks, card-issuing entities, payment gateways and others, must work simultaneously to make it possible before January. However, the challenge is everyone is reluctant to work for the January switch. “Given the complexity and expenses involved in the task, it is very difficult to make the necessary changes in the payment ecosystem,” said Ramesh Kailasam, chief executive of lobby group IndiaTech.org.

Banks Alerting Cardholders

However, some banks have taken the plunge to inform customers of the impending changes. In an email alert sent by HDFC Bank, the customers are told that the card details saved on the MErchant Website/App will be deleted from January 1, 2022. They have to enter full card details or opt for tokenization to pay each time. American Express has sent their notification to their customers as well.

Websites including MakeMyTrip and TataCliq have started taking customers’ consent to tokenize their cards. However, the majority of the eCommerce companies feel that the customers might need years to get comfortable with the idea of tokenization for online transactions. It will be interesting to wait and watch how the situation unfolds.