India’s central bank is unlikely to extend Friday’s deadline for businesses to set up an extra layer of security for customers’ credit card data, bankers and traders say, despite concerns about payment failures and revenue losses.
Despite calls from small traders to delay the compliance date, the central bank has so far given no indication that it is likely to extend the deadline, three banking and business sources with knowledge of the matter told Reuters.
The Reserve Bank of India (RBI) did not respond to an email request for comment.
“The general sense is that the banks, card networks and (big) merchants are well prepared and so the push from the ecosystem side for expansion has not been very strong and we have not seen any indication to suggest expansion,” said. A banker with a large state-owned bank.
“If that happens, it will be a surprise,” he added.
Three years ago, India launched a massive exercise to secure card data by requiring businesses to tokenize cards by September 30.
Tokenization is a process by which card details are replaced with a unique code or token, generated by an algorithm, to improve data security, allowing online purchases without disclosing card details.
The RBI first implemented the rules in 2019 and after several extensions has ordered all companies in India to purge credit and debit card data saved from their systems by October 1, 2022.
While banks, card companies and large retailers are ready, small traders may face difficulties that can cause them to lose revenue in the short term.
Trade associations have also approached the central bank to see if they can be given more time.
Some merchants and bankers also fear that card-related transactions will slow down in the short term after the tokenization rules are implemented.
“The moment an additional level or friction starts, payments are expected to come down. And there is concern that we may see a recurring decline to the same level we saw initially,” said Rohit Kumar, founding partner, public policy, TQH Consulting. Consulting firm.
When earlier tokenization deadlines were approaching, recurring payments were failing by 10-15 percent, according to traders.
Besides payments, other things that need to be stress tested include what happens when a product is returned and other post-transaction flows so card data won’t be stored on merchant servers, said Rajaram Suresh of Boston Consulting Group.
Unlike India where it has been mandated, European stakeholders have been encouraged to issue card tokens for security benefits, Suresh added.
However, analysts say that at a time when digital payments are expected to reach $10 (approx. Rs. 8,17,37,500 crore) by 2026, tokenization is imperative. According to central bank data, fraud related to card or internet transactions is on the rise and accounted for 34.6 percent of total fraud cases in FY21.
“People are used to one-click checkout so adoption may take longer and some may switch to cash but given that it makes online transactions more secure, consumers will adopt it faster this time without much hassle,” Jagdish Kumar Senior Vice President said Chairman of Worldline India.
© Thomson Reuters 2022
