What is tokenization and how to use it to improve data security?

Updated: 03 Oct 2022, 02:02 PM IST

RBI is not looking forward to extending the deadlines for tokenizing your card details. In this article, we will understand everything we need to know about the process and requirement of tokenization.

Tokenization technically refers to the process of replacing sensitive data elements with surrogate values or tokens.

In recent RBI’s bi-monthly monetary policy, along with repo rate hikes and other economic decisions, it has also been announced that extending the deadline to tokenize the debit and credit cards of the individuals is unnecessary as 35 crores tokens are already created.

As RBI monetary decisions are related to the individuals in the country, does this decision also affect us? In order to understand the reason behind this, we need to understand what is the tokenization of debit and credit cards and why do you need to be concerned about it.

What is tokenization?

Tokenization technically refers to the process of replacing sensitive data elements with surrogate values or tokens. The procedure is quite equivalent to the encryption process. Tokenization is a type of format-preserving data protection where sensitive values are changed into non-sensitive tokens that are the same length and format as the original data.

In the context of payment transactions, tokenization refers to the replacement of actual credit or debit card details with alternative secured code which is called as tokens. The token will be unique to the entity which accepts the request of the customer to tokenize the card, issuer of the token, and device.

Why is the RBI focusing on the tokenization of cards?

Currently, which is before tokenization technology, we need to enter card details manually every time we use the card or make the payment, whether it is debit or credit, which brings an issue of human error of entering wrong details sometimes. Sometimes, such wrong details lead to transaction failure due to frequent changes in a very few times.

Due to the adoption of tokenization technology, customers will now not need to enter the details every time they use their cards. As a card user, you need to secure your card with just a one-time password at the time of tokenizing it, as your data will be converted into a unique code which will enhance the security level and your ease of transaction as well.

To promote digitization in the country and protect the security of cardholders, RBI is focusing on tokenization technology to adopt.

Note: Card details here mean card number, CVV, names(s), and validity date.

How to tokenize your card?

  • You can use third-party applications such as the UPI app, banking applications, or wallet apps, known as the token requestor, to initiate the card tokenization request.
  • The token requestor will forward your request to the card network. Card network entities are authorized by the RBI.
  • With your consent, the card network will issue the unique token corresponding to the combination of the card, the token requestor, and the device.
  • Now you are ready to use such tokens as your card details without exposing your sensitive data for making any payment.

Establishing a sense of security across the country and promoting the online payment industry might be the reason why RBI is not willing to extend the deadlines for tokenization card details.

However, you need to be aware of fraudulent activities in the process, too, as there are no any charges imposed by the government authorities to accomplish the procedure. If anyone is asking for any fees regarding tokenization, report to the concerned authorities as soon as possible.

Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com

Disclaimer: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision.

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First Published: 03 Oct 2022, 02:02 PM IST