Card-on-File Tokenization (CoFT) is a process where actual card details are replaced with a unique alternate code called a token.
Each token shall be unique for a combination of cards, the token requestor (i.e. the entity that accepts a request from the customer for tokenization of a card and passes it on to the card network to issue a corresponding token), and the merchant (token requestor and merchant may or may not be the same entity).
When a consumer uses a tokenized card for a transaction the actual card details are not shared with the merchant, which enhances security. The initiative aims to provide cardholders with an easier way to create and link tokens to their existing accounts when using various E-commerce applications.
The Reserve Bank of India has proposed to introduce CoFT as a measure to enhance convenience for cardholders. To enhance the effectiveness of CoFT, the RBI has also extended the Payments Infrastructure Development Fund (PIDF) scheme by 2 years until December 31, 2025. The PIDF scheme aims to increase the number of payment touchpoints across India promoting digital payments at the grassroots level.
Card-on-File Tokenisation (CoFT) offers several advantages:
Enhanced Security: With tokenization, sensitive card information is not shared with merchants during transactions. This significantly reduces the risk of data breaches and fraud, enhancing the security of digital payments.
Convenience: Cardholders no longer need to enter their card details for every transaction. Once the card is tokenized, the token can be used for multiple transactions without exposing the actual card information, making the payment process more convenient for users.
Reduced Friction: The process of entering card details for each transaction can be cumbersome and time-consuming. Tokenization reduces this friction associated with digital transactions, leading to a smoother payment experience for consumers.
Promotion of Digital Payments: By enhancing the security and convenience of digital transactions, the RBI's initiative encourages more people to adopt digital payment methods. This aligns with the government's efforts to promote a cashless economy and financial inclusion.
Innovation in Payment Methods: The RBI's move to extend the PIDF Scheme and include emerging modes of payment acceptance, such as soundbox and Aadhaar-enabled biometric payment acceptance devices, fosters innovation in the payment industry. This diversification of payment methods caters to a wider range of consumers and merchants.
RBI's Card-on-File Tokenization enhances India's digital payment landscape, ensuring security, convenience, and trust for consumers. By replacing sensitive card data with tokens, this initiative simplifies transactions, encourages financial inclusion, and accelerates the nation's transition to a secure cashless economy.
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