The Rise of Card Tokenisation in India

Card tokenisation has rapidly transformed the digital payment landscape in India. As of December 2024, over 91 crore tokens have been issued, facilitating more than 320 crore transactions valued at nearly ₹11 lakh crore. This growth puts stress on the shift towards enhanced security in e-commerce, with 98 per cent of online transactions now processed without actual card data.

Card tokenisation has emerged as a powerful tool in India's digital payment revolution. As of December 2024, a staggering 91 crore tokens have been issued, enabling over 320 crore transactions and facilitating payments worth nearly ₹11 lakh crore. This remarkable growth highlights the increasing adoption of tokenisation to enhance e-commerce security, with 98 per cent of online transactions now processed without exposing actual card data.

What is Tokenisation?

In the realm of digital payments, tokenisation is a critical security measure that replaces sensitive card data, such as the 16-digit card number, expiry date, and CVV, with a unique token. This token is generated by the payment network and serves as a substitute for the actual card details during transactions. As a result, merchants and other third parties never handle or store the sensitive card information, significantly reducing the risk of data breaches and fraud.

Evolution of Tokenisation in India

The Reserve Bank of India (RBI) has been at the forefront of promoting card tokenisation to enhance consumer protection and payment security. In October 2022, the central bank mandated businesses to stop storing customer card data on their servers or sharing it with third parties. This policy shift was implemented to strengthen consumer protection measures and ensure that sensitive financial information is not exposed on multiple third-party platforms.

Against this backdrop, tokenisation has become an essential cog in securing digital payments, reducing the vulnerability of sensitive card data to data breaches, and ultimately protecting consumers from potential financial fraud.

How Tokenisation Works

The tokenisation process typically involves several steps:

A customer initiates a purchase on an e-commerce platform or uses a digital payment application.

The platform or application sends a request to the payment network along with the customer's card details.

The payment network generates a unique token and securely stores it in its network.

The token is then shared with the platform or application, which forwards it to the customer's device.

During subsequent transactions, the customer's device sends the token to the platform or application, which then transmits it to the payment network for processing.

Benefits of Tokenisation

Tokenisation offers several key benefits, including:

Enhanced Security: By replacing sensitive card data with tokens, tokenisation helps prevent data breaches and fraud, ultimately protecting consumers and businesses.

Seamless User Experience: Tokens simplify the payment process, allowing customers to complete transactions quickly and easily without manually entering card details.

Increased Transaction Volume: Tokenisation enables faster transaction processing, which can help increase transaction volumes, especially for high-frequency purchases.

Cost-Effective Solution: Compared to other data security methods, tokenisation is a more cost-effective solution for securing payment information.

Tokenisation vs. Encryption

While both tokenisation and encryption are techniques used for data security, they differ fundamentally in their approach. Encryption involves scrambling data using a mathematical algorithm and a key, which is then used to decrypt the data. On the other hand, tokenisation replaces sensitive data with non-sensitive tokens that cannot be reversed.

Moreover, encryption typically requires both the sender and receiver to have the decryption key, while tokenisation does not. This makes tokenisation a more suitable option for scenarios where multiple parties need to handle data without exposing the original values. In the context of digital payments, tokenisation is better suited for protecting card data that needs to be shared between customers, merchants, and payment networks.