RBI to allow and enable Tokenization of Card Transaction - Background Context
The Reserve Bank of India has allowed tokenization of debit, credit, and prepaid card transactions to enhance the safety of the digital payments ecosystem in the country.
RBI has been approved and banks have been offered consent for the operations using all varieties of payment services and payments methods such as magnetic secure transaction (MST), near-field communication, in-app purchase methods, and cloud-based payment services.
What is Tokenization?
The Tokenization will substitute the card details with a code, popularly known as “Token”. This change is for the use of the cards as a mode of payment. Earlier while cards were used as a mode of payment, the card details were shared and exchanged for the authorization of the transaction at the point of sale (POS) terminals, this will be changed and instead of card details, the “Token” will be used to authorize and validate the card at POS and QR payment systems. The primary objective behind Tokenization of Transaction is improvement in the payment system for better security.