RBI likely to consider extension of deadline on tokenisation rules; final decision yet to be taken

The Reserve Bank of India (RBI) is likely to extend the deadline on new tokenisation rules given the discomfort expressed by various stakeholders in meeting the December 31 deadline, according to two people familiar with the development.

“The RBI may extend it for 3-4 months so that the system can prepare in a better way to avoid a massive disruption,” said one of the persons quoted above.

However, there is no final decision taken on this yet, said the persons quoted above.

Earlier, the industry lobby of banks, Indian Banks Association (IBA), had made representation to the RBI for an extension of the tokenisation deadline. That apart, some banks too had approached the regulator seeking an extension.

“Banks are prepared but the problem is with other stakeholders, mainly small and mid-sized merchants,” said the second person.

Tokenisation refers to the replacement of credit and debit card details with an alternate code called a “token”. A token is unique for each card, token requestor and device. The token requestor is the entity that accepts a request from a customer for tokenisation of a card and passes the request on to the card network for the issue of a corresponding token.

A tokenised card transaction is considered safer as the card details are not shared with the merchant during transaction processing. The cardholder can get the card tokenised by initiating a request on the app provided by the token requestor.

The token requestor will forward the request to the card network, which, with the consent of the card issuer, will issue a token corresponding with the combination of the card, the token requestor, and the device.

Earlier, the RBI had asked banks to check the level of preparedness at the entity level. The central bank has reached out to banks in recent weeks to ensure the transition is smooth, according to people familiar with the development.
“The RBI wants banks to ensure the banking system is prepared for the new rules. The regulator is in touch with most banks on this subject,” said a senior official at a private sector bank, on condition of anonymity.

While banks are confident of meeting the new norms along with payment networks, merchants are not ready. During consultations with the RBI, banks warned the regulator of potential chaos as small merchants need more time for the big shift.