10 August, 2021

Will Tokenisation be the next big innovation for digital transactions? PhiCommerce decodes

Tokenization is going to be the next biggest game changer and will lead the next phase of innovation in India’s digital payment market. Rajesh Londhe, Head of Payments talks about why we need tokenization and how PhiCommerce plans to make tokenization a reality in India.

Over the past few years, India has become the epicentre of digital payments and with the pandemic, there has been a sharp rise in online transactions, we are truly at the cusp of digital transformation. On one hand, consumer behaviour, technology and regulatory policies are collectively pushing the needle for digital adoption. On the other, the penetration of smartphones and ease of access for eCommerce continues to fuel this growth. According to 2021’s annual report by RBI, 2020-2021 witnessed the share of digital transactions of the total volume of non-cash retail payments increase to 98.5 percent from 97.0 percent of the previous year. 

With 48 billion digital transactions recorded in 2020, digital payments are the fastest-growing reality that India is adopting. With a rising digital payment inflexion as this, concerns for safe transactions follow suit. Changes in user behaviour and demand for seamless as well as touchless payment modes call for stringent payment infrastructure. The success of digital payment certainly rides on the ability of safe transactions and fraud detection.

Digital payment is at an interesting juncture with the recent RBI guidelines dictating that E-Commerce websites, online merchants, and payment aggregators (Amazon, Flipkart, GooglePay,  NetFlix among others) can no longer store a customer’s card details online. What does this mean? It means that a common user will now not only have to remember CVV or ATM pin but will have to memorize the 16 digits of a credit or debit card for each transaction. Not everyone agrees with these new guidelines for the simple reason that this would make payments tedious as not all can memorize their various card numbers. Is there an effective way to make digital payments safely and seamlessly? The easiest answer to this is Tokenization. Tokenize literally means “to substitute” with the process of tokenization acts as an additional layer of security for hassle-free payments. 


What exactly is tokenization? Why do we need it?


Though the concept of tokens has been around for a while now in other countries, it is still at a nascent stage in India. Tokenization is a process of replacing the actual 16 digit card numbers with a randomized alphanumeric character (token) to protect users from data fraud. These tokens camouflage the actual card details stored and thus help merchants, card networks, issuers and acquirers move data without the hovering threat of payments fraud or identity theft. This helps find a perfect balance between data security and user experience.

Tokenization efficiently also substitutes a consumer’s sensitive PAN (permanent account number) information with a unique identifier (a token) that protects transactions when used for in-store mobile payments or online buying.

Discussions around tokenization are on the rise and rightly so, as it is a much-needed piece in the larger digital payment jigsaw puzzle while keeping all the stakeholders content. According to Markets and Markets, the Tokenization market’s worth is estimated to reach $4.8 Billion by 2025. 

Globally, tokenization has been able to reduce fraud impact on online merchants by an average of 26 percent. Tokenization will be the next big game-changer for India’s digital payment narrative by achieving the main goals of being customer-centric and cost-effective.  Some of the benefits that the ecosystem can reap:

  • Consumers: Seamless omnichannel (online, in-store and in-app) payment experience with enhanced security. Fewer transaction declines eventually result in increased digital trust and consumer confidence.
  • Merchants & Acquirers who support tokenization benefit from an increase in authorization rates. Further, the security liabilities of the merchants are reduced as they no longer need to store sensitive data
  • Issuers: Benefit from enhanced secure offerings, designing new payment flows, acquiring a new consumer base, and a lower cost of risk. Also, when a card is renewed or replaced, there’s less danger of it losing the coveted top-of-wallet status (because there is no need for cardholders to update their details with a merchant).

Understanding the need for Tokenization, how can this be successfully implemented in India? 

Considering most innovations in the digital payment segment are being built on top of cards, implementing tokenization will not be a difficult task.


PhiCommerce – pioneering tokenization 


We are a new-age financial technology company on a mission to address the evolving needs of digital payments infrastructure. Innovating the digital payment infrastructure by incorporating it into our offerings has always been our key focus. This has helped us stay ahead of the game, remain nimble and future-ready at all times. 

There are multiple approaches to Tokenization, with network tokenization being the most widely adopted approach in the market currently. Network Tokenization in payment networks replaces a primary account number (PAN) with a unique EMV payment token that is restricted in its usage, for example, to a specific device, merchant, transaction type or channel. Network tokenization ensures that PAN details are protected throughout the transaction lifecycle. However, large merchants, issuers, private label operators and payment processors are also exploring other approaches, where mentioned players have greater control of the generation, issuance and management of payment and non-payment tokenization. This enables players to build custom token solutions that protect and enrich omnichannel customer experiences to increase engagement and loyalty among their customers across channels.

At PayPhi, we are not only providing token services, given our expertise in designing and developing a card vault and end-to-end EMV compliant tokenization solution for a network with hundreds of millions of cards; but also if you are a large card issuer or a private label player or someone who wants to roll-out a custom-built approach to tokenization or extend tokenization to non-card payments, we are your partners of choice.”


The future of tokenization 


The world is amidst a digital revolution, we have started to progress from laptops, phones to wearable technology. With COVID as a catalyst, e-Commerce and digital payments have catapulted to newer heights in a blink of an eye. Tokenization is a natural progression and the next chapter in the global digital payments story due to the need for safe as well as seamless payments online. PhiCommerce is strongly positioned to enable the digital payments ecosystem to partner, innovate, and adopt tokenization.