India paves the way for secure tokenized digital payments

India has found itself at the center of digital payment innovation, driven by e-commerce, consumer behavior, progressive government approaches, and the global pandemic. Safety worries and travel restrictions meant that online transactions have increased dramatically, with Razorpay announcing 80% growth in 2020, compared with 2019.¹ And there’s a growing preference for contactless payments too, with the Reserve Bank of India (RBI) supporting this move by raising the contactless payment limit to Rs. 5,000, up from Rs. 2,000, an increase of 150%.

While the pandemic served to advance India’s digital payment landscape, it wasn’t the only driver. India’s digital trajectory has been accelerating for a while. In 2019 – pre-pandemic – India recorded the highest fintech adoption rate in the world.² There are countless fintechs in the country at present, and over 50 of them are valued at over $100m. Also, 67% of Indian fintechs have been set up in the last five years alone.³ In July 2021, India’s Prime Minister Narendra Modi unveiled the e-RUPI, a new digital payment system that is neither cryptocurrency nor central bank digital currency (CBDC)⁴. Instead, it is akin to an e-voucher that can be redeemed without the need for a card or internet banking access, thus fostering inclusion.

India is at the fore of digital payment innovation, and recent moves toward tokenization to maximize security are boosting the country’s status as a digital forerunner.

Securing digital payments via tokenization

The topic of tokenization is on everyone’s lips at the moment. An alternative to encryption, it refers to the process of turning sensitive data into a unique, non-sensitive equivalent by replacing it with a token. The token, containing none of the original, sensitive data, just serves as a representative of the original data, making it entirely uninteresting for fraudsters.

It makes for a safer and more secure transaction, and for the end customer, there is no change in the way a transaction is made, yet the risk of fraud is reduced substantially.

India’s payments system is on the point of digital inflection, and its success thus depends on the country’s ability to prevent fraud and protect consumer information. India’s central bank is putting a great deal of effort into minimizing this risk. In September 2021, the RBI released a statement on e-commerce transactions within the ambit of tokenization to mitigate the risk of fraud and to ensure payments are as safe as possible for end customers.⁵

The central bank’s timely legislation to ensure secure digital transactions is one major step on India’s path toward an increasingly digital society. Globally, tokenization has been shown to reduce fraud by a quarter, according to Visa,⁶ and to date, no fraud has taken place as a result of payment tokenization in India.

What does this mean for the rest of the world?

The benefits of tokenization in e-commerce range from compliance and added security, to increased levels of customer trust – thanks to fewer data breaches that can reduce consumer trust in a company. It’s an implementation that, if rolled out globally, could reduce fraud on an enormous scale.

Around the world, technology is a ubiquitous part of our daily lives, even beyond laptops and mobile devices. Tokenization has the potential to redefine the payments ecosystem around the world, making digital payments more secure and the entire payment process smoother for end users.

Published: 28/10/2021