Industry players are in a better position to roll out card-on-file tokenisation as compared with three months ago and are on track to meet the September 30 deadline imposed by the Reserve Bank of India.
As per industry estimates, about 70-80 per cent of the active cards have been tokenised, whereas in terms of the volume of transactions, the number stands at over 70 per cent of card-on-file transactions.
“There are sizeable tokens being created in the market, a little over 11 crore tokens have already been created and this number will grow. The majority of active transacting customers have already tokenised,” said Ravi Datla, Vice President-Digital Products, South Asia at Mastercard.
Mastercard said that all of its partner issuers have adopted tokenisation. It has also enabled tokenisation for over 2 lakh merchants, of which 45,000–50,000 have already started creating tokens.
PhonePe has said that it has tokenised 1.4 crore debit and credit cards, which comprises over 80 per cent of active users. Peer Paytm also said that it has “tokenised the majority of active cards” and is on track to meet the RBI deadline.
After it prohibited merchants from storing customer card details with effect from January 1, the RBI mandated the creation of encrypted ‘tokens’ as an alternative to card storage from July 1. The deadline was later extended by three months, based on the level of preparedness of the payments industry.
Tokenisation challenges
Most issuers and card networks have enabled tokenisation, but some challenges are being seen on the merchant side, especially in the case of larger merchants, as smaller merchants were able to migrate easily due to tokenisation being enabled at the back-end.
“There are a few merchants, usually the larger ones, who have their own customised checkouts. Some minor changes are needed, but those communications have been going on for a long time, so there has been sufficient time to migrate,” said Reeju Datta, co-founder of Cashfree Payments.
Given that the success of the token mechanism is also dependent on customer adoption and willingness for their card details to be tokenised, the industry is prepared to see lower transactions from saved cards as customers transition to the token mechanism.
“If the number of saved card transactions stabilises to what the percentage was earlier, it would be a very successful move because the customer experience is still preserved and you have a more secure platform,” Datta said.
Further, even as most active customers have migrated, inactive customers or those that have set recurring or auto-debit payments remain a concern due to the likelihood of higher payment defaults in the initial months.
Recurring or auto-debit payments are a popular mechanism used by retail and corporate customers for regular payments such as utility and bill payments, MF investments, insurance premium payments, and any other subscription-based business.
“Majority of our partners have scaled, but some of the partners are still in the process, especially on recurring payments. We are encouraging them to scale and we will support them through this journey,” Datla said.
Success rate of tokens
During the initial transition to the tokenisation mechanism, decline rates were higher, leading to the industry seeking an extension to the earlier June 30 deadline, stakeholders said.
Over the last few months, this has stabilised and the decline rates are now lower as compared with card-based transactions owing to a reduction in fraud and failed transactions due to factors such as expiry of cards and entry of wrong card details.
Mastercard said that the success rate on tokens is 3-4 per cent higher than on cards, whereas PhonePe said that it has seen an improvement of around 2 per cent.
This is good news for merchants as a better success rate is important for their revenue realisation, industry players said, adding that it will also translate to a better customer experience and encourage more online card payments.
“With such changes, there may be some issues initially, but once we are past those, the overall impact on customer safety and the overall user experience is significant,” said a spokesperson for SBI Card.