What is tokenised card transaction?

Updated on December 20, 2023

The card issuer shall provide a complete list of merchants for whom it can provide tokenisation services. The cardholders shall select the merchants with whom he/she wishes to maintain tokens. (Alternatively – “The cardholder can make his selection from the list ).

It is now proposed to introduce CoF token creation facilities directly at the issuer bank level.

Tokenisation is a process by which actual card details masks sensitive card details of your debit/credit / prepaid card with an alternate code. This process by which the primary details of a card are replaced with a surrogate value is called a token.
A tokenised card transaction is considered safer as the actual card details are not shared with the merchant during transaction processing. Instead of using actual card details, this token is used to perform card transactions in contactless mode at point-of-sale (POS) terminals, and quick response (QR) code payments. The primary card data, token, and other relevant details are stored in a secure mode by the authorised card networks. The Token requestor is not permitted to store Primary Account Number (PAN), i.e., card number, or any other card detail. Card networks are also mandated to get the token requestor certified for safety and security that conforms to international best practices / globally accepted standards.
Reserve Bank of India in its notification dated January 8, 2019, has permitted to offer tokenised card transactions services to all channels such as near field communication (NFC), magnetic secure transmission (MST) based contactless transactions, in-app payments, QR code-based payments or token storage mechanisms, including cloud, secure element, and trusted execution environment. At present, tokenised card transaction facility would be offered only through mobile phones or tablets. The customer need not pay any charges for availing this service.
Registration of a card on token requesters* app shall be done only with explicit customer consent through Additional Factor of Authentication (AFA), and not by way of a forced / default/automatic selection of checkbox, or radio button, the release said.
[*A Token Requester (TR) is an entity like digital wallet providers, payment enablers, merchants, and Internet of Things (IoT) manufacturers (IBM, Alibaba, etc.) that requests payment tokens for end-users.]
The customer (cardholder) has the option to set and modify per transaction and daily transaction limits for tokenised card transactions.
In terms of RBI notification, Tokenisation, and de-tokenization (conversion of the token back to actual card details is known as de-tokenisation) shall be performed only by the authorised card network and recovery of the original Primary Account Number (PAN) should be feasible for the authorised card network only. The card issuers ensure easy access to customers for reporting the loss of an ‘identified device’ or any other such event which may expose tokens to unauthorised usage.