In Sep 2021, the Reserve Bank of India announced that Indian merchants will not be able to store any confidential credit and debit card information on their servers post Dec 2021. While the deadline has been extended by six months, the fact remains that organizations need to be prepared for this disruption.
The Reserve Bank of India (RBI) had recently announced that no organization can engage in Card-on-File (COF) transactions by storing card details on their servers. They have to implement tokenization on their payment channels to ensure optimal security to consumers’ data privacy.
India is not the first country to adopt card tokenization so extensively. North America was among the earliest adopters of tokenization technology, followed closely by Canada, the United Kingdom, and Germany. Since then, technology companies like Paymetric, Broadcom, Hewlett Packard, have been working on creating bespoke solutions for tokenization. Many more companies are following suit to make the Tokenization Solution Market worth USD 4.8 Billion by 2025, growing at a CAGR of 19.5% from the year 2020.
But what does tokenization do, and why are global BFSI companies sprinting to get on board this bandwagon? Let’s discuss that.
Simply put, card tokenization is a process of replacing confidential data from a company’s internal network with ‘tokens’. The tokenization process was invented to protect sensitive data and companies from the consequences of potential data breaches.
In today’s connected world, the digitization of monetary transactions can never be safe. No matter how stringent security measures are used, hackers can always find a way to intercept the communication on networks and make use of vulnerable data to meet their private ends. Storing such sensitive data is not safe if the company doesn’t have high-maintenance security measures.
Tokenization eliminates this risk by storing all the card information on separate and more secure third-party servers or tokenization platforms. These platforms, while storing the information, create a token that is later used to fetch the required data and send the same to payment service providers.
These tokens can then easily be stored by the company. And since they do not contain any details of the cards themselves, can be stored without stringent data protection measures.
How Does Card Tokenization Work?
Card tokenization begins from the customer’s end-point and terminates at the merchant’s payment processor, just like any conventional transaction. It’s the intermediary process that makes tokenization a secure and reliable tool.
For instance, when a customer makes a credit card transaction for the first time, that information is sent to the server and then to the tokenization platform. The platform returns a token as a reference. This token can now be stored on the company’s internal network without posing any risk to the customer’s sensitive data.
Each time the same customer makes any new transaction using this token, the server places a payment request to the tokenization platform, which then can retrieve and send the relevant information to the merchant’s payment gateway channel. Next, the payment service provider processes the transaction like any traditional one, and then sends a confirmation message to the server acknowledging the payment completion.
Next, let us look at some business benefits of card tokenization.
Business Benefits of Tokenization
Here are some of the business benefits of card tokenization:
Businesses that accept credit card payments and store the relevant information, must comply with the PCI guidelines. However, complying with PCI requirements is not an easy task, with the need to maintain strict security measures to protect customers’ data.
Tokenization is a better solution for all these companies. By saving the tokens in place of credit card information, this technology can ensure a perfectly flawless experience for users, while ensuring that their data remains secure.
As a payment solution provider, Verinite has unlocked business value for its customers in the financial services domain. Not sure of how you can transition to the world of card tokenization? Verinite can help you. Get in touch with us right away.