Online merchants can lose up to 20-40% of their revenues post 31 December, and for many of them, especially smaller ones, this would sound the death knell, causing them to shut shop. This was brought out at a virtual session on “Digital Payments and the India Media Consumer” which was organised by CII’s Media and Entertainment Committee on Wednesday.  The session was moderated by Mr Vikram Chandra, Founder, Editorji and the discussants included Mr Sijo Kuruvilla George, Executive Director, ADIF and Mr Pradeep Mehta, Secretary General, CUTS International. The aim of the session was to bring to light the problems consumers were going to face from next year due to the RBI deadline of 31 December for tokenization. This means that from 1 January, merchants will not be able to store card information of users and will have to replace each card number with a randomized token number.

According to George, merchants will lose out in this process for no fault of theirs. They cannot create tokenization infrastructure under the RBI rules. At the same time, they are the ones who are facing consumers and will be responsible for educating them on why their transactions are not going through seamlessly. They will lose out on customer loyalty. Tech integration, loss of revenue and customer education were squarely falling on the merchant, and they had no time to do it all because of a lack of upstream readiness or commitment in the matter, said George.

India has an estimated 98.5 crore cards, which are used for about 1.5 crore daily transactions worth INR 4000 crore. The value of the Indian digital payments industry in 2020-21, as per RBI’s annual report, was INR 14,14,85,173 crore. Digital payments have triggered and sustained economic growth, especially through the trying times of the pandemic.

While RBI’s intent is to protect consumer interest, the challenge on ground pertains to implementation. For a tokenisation solution to be consumer ready (i.e. for consumers to be able to complete transactions successfully using tokens instead of their card information), the solution should have completed three steps –

Token provisioning: The consumer's card number should be convertible into a token. This means the card network (i.e. Visa, Mastercard, Rupay etc., bank, processor and merchant of the customer) should be ready with the relevant infrastructure

Token processing: Based on the provisioned token, the consumer should be able to complete their transaction successfully

Scale-up for multiple use cases: The consumer should also be able to use the token for things like refunds, EMIs, recurring payments, offers, promotions, guest checkouts etc. The back-end infrastructure should be able to successfully manage all of this at the rate of millions of transactions per second (which is the volume card transactions see today, with ~85% success rates).

However, India is nowhere near having completed these three steps and rushing through with tokenization without adequate system preparedness is going to have a negative impact on transactions.

With these added layers of friction and lack of consumer awareness on regulatory changes, digital payments were no longer going through smoothly, said Mehta at the CII session. RBI should, as other regulators do, create a consultative environment and ensure all stakeholders (including consumers) are able to participate and share their perspectives towards a more informed and well-thought-through regulatory framework, he said.

Without consumer education, the likelihood of frauds will increase manifold, felt Chandra. With scores of messages, calls and links asking for card authentication or consent or something else altogether that were hitting consumers every day, things were getting really confusing, he said. Even tech savvy customers were not sure anymore of what was genuine and what was phishing. This was the exact opposite of the stated regulatory goals, he averred.

There is no logical reason to have 31 December as a deadline date, said George. There is no Y2K like problem, and all the concerns (for merchants and consumers) can be alleviated if RBI grants adequate time in a phased manner, he said.

The growth opportunities that India’s digital payments ecosystem has to offer are immense, and hence regulation has a crucial role to play - to ensure that the economy burgeons, to support businesses, and to protect consumer interest. To surmount the challenges emerging from the upcoming regulatory changes, it is imperative that all stakeholders - banks, card schemes, aggregators, gateways, processors, merchants, consumers and the regulator - work together to hone-in on a strong and sound payments ecosystem.

22 December 2021