How Card Tokenization Makes Online Transactions Much Faster, Smoother and Safer

Especially if you're someone who often shops online, orders food frequently or uses ride-sharing apps.

Card tokenization deadline extended to 30th September, 2022

Source - Mastercard

If you have followed the news over the last few weeks then you have probably heard the buzzword 'card tokenization'. But what exactly does it mean? And why are we doing this now?

Let's start from the beginning shall we? Last year, in March, the Reserve Bank of India came up with new rules to enhance the security of online transactions made using debit and credit cards.

When RBI had initially suggested these changes, the deadline for online merchants and payment companies to upgrade their infrastructure to accommodate tokenization was December of 2021. But after months of lobbying with the RBI on behalf of these companies the deadline was pushed to 30th June 2022, which has now been extended to 30th September, 2022. It's not that the card companies or the online merchants had a problem with the concept. It's just that they needed more time to upgrade their infrastructure to ensure the transition is as smooth as possible for both merchants and customers. And so now here we are.

So why the push for card tokenization?

The core Idea behind this was to put an end to the practice of online merchants storing the precious card details of customers which the central bank believed could potentially lead to misuse of cards by fraudsters.

How is card tokenization more convenient for the customer?

There were some initial concerns that tokenization could lead to some inconvenience because customers were used to having that card details on merchant platforms such as e-commerce, food delivery and ride-sharing apps and websites. Would the new rules mean that every time a person wanted to make a transaction on any such website or platform they would have to enter their card details from scratch? Well, not exactly - in fact, tokenization of the card when done once on every platform, would actually make the transaction process much easier, and that too with the added relief of knowing that your data was safe and secure.

How does card tokenization work?

When you make a transaction with an online merchant on their platform the details you enter get stored on their servers. This means that any breach of data on their end could potentially lead to your details being compromised. With card tokenization this could be avoided completely because once you initiate the one-time tokenization process the merchants platform no longer stores your private data.

If card tokenization is perceived as a hassle will this lead to more customers simply using other methods of payment?

Short answer: Maybe, or maybe not. Long answer: Not really, because eventually you will realize how it makes total sense to use tokenized credit cards for online purchases. This is exactly why card companies such as Mastercard have been pushing for more awareness about tokenization and how the use of credit cards is a much safer, smoother and faster option.

With almost all credit cards, not just the ones powered by Mastercard, customers get a 45-day float period (some cards may have 30 or 60 days) within which they can make the payments without any extra interest. On top of that almost all credit cards have some sort of discounts with a wide range of online merchants and retailers. Add to that the benefits of earning membership points and you have what we would like to call the perfect payment system. But the most important reason why a credit card makes so much sense, especially these days, is the fact that with regular payments you get to build your credit score. And anyone who's ever tried to take a loan from a bank or any other financial institution will tell you how it is crucial to have a good credit score.

What happens to customers who do not register their cards for tokenization on merchant platforms?

People who choose not to go ahead with tokenizing the card details on merchant platforms can still make transactions but they would have to enter their card details every single time because as per the new rules merchants cannot store such details on their servers.

What do I get for tokenizing my card?

To start with, tokenizing your card gives you the much needed peace of mind knowing that your card details will not be misused because they simply do not exist on servers that can be compromised. But if that's not enough for you, you would be glad to know that Mastercard is leading the way in making card tokenization a very attractive concept by giving out some amazing rewards. So whether you are someone who shops frequently on e-commerce sites, or someone who orders frequently from food/grocery delivery apps, if you happen to make these purchases using tokenized Mastercard credit cards you can get cashback rewards.