Card-on-file tokenization

10 Jan 2024 3 mins Download PDF

Context: Reserve Bank of India (RBI) has authorized the implementation of card-on-file tokenization (CoFT) in collaboration with card-issuing banks and institutions, aiming to enhance the security and safety of digital payments.

Card-on-File Tokenization (CoFT):

The Reserve Bank of India (RBI) introduced Card-on-File Tokenization in September 2021, and its implementation commenced on October 1, 2022.

Objective:

The primary goal is to streamline the process for cardholders, allowing them to easily generate tokens and associate them with their current accounts within various e-commerce applications.

Tokenization Definition:

Tokenization involves substituting actual credit and debit card details with a unique code known as the "token." This code is distinct for a specific combination of card, token requestor, and device.

CoF Transaction Explanation:

A Card-on-File (CoF) transaction occurs when a cardholder grants authorization to a retailer to store their Mastercard or Visa payment information. Subsequently, the cardholder permits the business to debit the stored Mastercard or Visa account.

Data Storage Locations:

Typically, card information is retained in the systems of various entities such as e-commerce companies, airlines, and supermarket chains.

Significance:

This initiative is pivotal as it simplifies the generation and association of tokens with the existing accounts of cardholders within e-commerce applications, contributing to heightened security and user convenience.

Advantages of Tokenization:

• Original Card Details Elimination: Tokenization eliminates the risk associated with storing actual card details online, ensuring secure storage of customer token information on the merchant's site.
• Uncompromised Convenience: This approach guarantees the convenience of storing customer token details without compromising security.
• Quick Checkout Process: Tokenized Mastercards facilitate swift checkouts by eliminating the need to input the card number for every purchase.
• Elimination of Legitimate Payment Declines: Tokenization addresses the issue of legitimate online payments being wrongly declined due to perceived fraud. The use of tokens for transactions assures the highest level of security.
• Tracking Tokenized Cards: Tokenization enables easy tracking of all cards and the merchants with which they have been tokenized, simplifying card management.
• Physical Card Not Required: Tokenization eliminates the necessity for a physical card, streamlining payment processes.
• Cashback Incentives: Tokenization offers additional benefits, such as cashback rewards when secured through platforms like Amazon, Paytm, Swiggy, etc.