Implementation of RBI’s Tokenisation Directive in Consumer Interest (CoFT Project)

Background
Digital transactions in India have risen manifold in the past few years. Challenges thrown by demonetisation and the pandemic, have been converted into opportunities for promoting digital payments. Estimates have suggested that India’s online retail market shall reach USD 350 bn by 2030 from USD 45-50 bn at present, which may contribute nearly 40 percent of the USD 800 bn consumer digital economy. However, the Reserve Bank of India’s (RBI) recent circulars on ‘Card Transactions: Permitting Card-on-File Tokenisation (CoFT) Services’ (tokenisation), and ‘Processing of e-mandate on cards for recurring transactions’ (recurring payments) may derail such growth.

The tokenisation circular issued on September 7, 2021, requires merchants to purge consumers card details saved with them, and implement Card on File Tokenisation (CoFT) by December, 31, 2021. CoFT refers to replacement of actual card details with a unique alternate code called ‘token’, which shall be unique for a combination of card, token requestor and merchant.

It is acknowledged that the RBI has the right intent of offering safe and secure payment experience to consumers. However, the short timeline provided for operationalising the same to the entire digital payment’s ecosystem – card issuers, card networks, payment gateways and aggregators, etc., may have adverse implications on consumers.

It has been argued that in case tokenisation is not operationalised before purging the card details, consumers would be forced to re-enter their complete card details every time they want to make a digital transaction, or would have to migrate to other modes of payments, causing immense inconvenience to them.

Similar adverse implications were recently witnessed with respect to the recurring payment circular, which came into effect on October 1, 2021. End consumers and merchants were made to face the brunt of non-implementation by banks and others in the ecosystem by this deadline, as many e-mandates for recurring payments have failed since October, causing immense inconvenience to consumers, and merchants alike.

With this context, CUTS is implementing this project to bring forth a consumer perspective on the challenges associated with operationalising tokenisation, and analyse its possible inadvertent adverse impact on merchants, small business, startups etc.

What’s New’

• Project brief