How will RBI’s tokenisation affect the digital payment ecosystem? #TokenisationReadiness

Users & merchants have just managed to understand digital payments. Will the RBI’s new e-mandate push them out of their comfort zone?

On October 1, 2022, the Reserve Bank of India (RBI) introduced card storage rules that prevent online merchants (like Amazon/Swiggy/Zomato) and payment aggregators & gateways (Razorpay and BillDesk) from storing credit and debit card details of their customers.

This has brought confusion among users, merchants, and payment aggregators especially because of the lack of clarity around recurring payments, EMI transactions, and even the readiness of smaller merchants.

Honesty of Intent from RBI

In its circular, RBI says that the tokenisation method will help combat money laundering and financing of terrorism. At the same time, the Know Your Customer (KYC) will ensure the safety of the customers.

Tokenisation for customers & merchants

The merchants and aggregators cannot store the credit/debit card details instead they will be allowed to issue a token i.e., a unique number based on the combination of the card details, merchant, and device.

In simpler terms, it means that your Visa ICICI card may have a token A on Amazon and the same card will be token B on Swiggy and token C on PVR. This way, if the card is compromised on one platform, it will not be compromised on another platform.

While this is for the safety of the consumer, the onus of tokenisation lies with the merchants.

The question arises, are merchants and users ready for these new RBI regulations?

The answer is yes, only if the system was simple, and clear, for all players and it gave an adequate time frame for different merchants to be ready before the deadline of Oct 1.

How will recurring payments be affected? Why is RBI’s e-mandate cumbersome for users and merchants?

Recurring payments like subscriptions will be affected the most. Previously, subscriptions would automatically take place on a set date. Now, customers will have to set up an e-mandate for recurring payments.

If the transaction is above INR 15000, then the user will receive a message from the bank, 24 hours before processing the transaction. The user will have to approve the transaction through a complicated multi-step process. For transactions below INR 15000, the user will still be asked each time if they want to approve the transaction or cancel it.

While this is in favor of the user, it puts a lot of burden on the user and at the same time, on the merchant and payment aggregator.

Payments will no longer be instant and easy, instead, they will be long and cumbersome, sometimes taking more than 24 hours to process.

The new mandate offers zero clarity on EMI transactions and thus these are also in the same boat as recurring payments.

The rise of wallets & UPI payments

A digital maverick like me always loves to see the brighter side of things. While RBI tokenization is going through teething problems, I believe it presents a golden opportunity for wallets and UPI payments.

Merchants like Amazon, Swiggy, Uber, Ola, and Zomato have their own wallets and users regularly load money in these for ease of payment. Uber, Amazon, and Ola wallets can be used on multiple other platforms as well. If a user connects these wallets to the platform, the payments will become easier.

At the same time, UPI banking platforms like Gpay and Phonepay have become the norm even in the smallest cities and villages. Merchants and users will turn to them for ease of payment.

While this will help the user with payment ease, it will also reduce the load of credit on them. Users will be spending their own money and reduce their dependence on credit cards. In the long run, this will improve the credit rating of the user.

At the same time, merchants will be assured that if the money is coming from the wallet or UPI platform, it’s a clear and definite debit.

Keep a close watch on how things progress

Over the next few weeks, RBI should keep a close watch on how the situation is developing in the payment ecosystem. This is crucial because any failed digital transactions due to a lack of merchant preparedness or system testing will result in low consumer confidence and even turn them back to traditional payment methods.

Recurring payments and EMI transactions need to be streamlined as well so that there is no inconvenience to the user and loss of revenue for the merchant/seller.

What are your views on the RBI’s new tokenisation mandate? Do share in the comments.

Penned by:

Mayura Amarkant