The new credit card rule will start on Saturday [Updated 2023]

 

On Saturday, a new credit card rule will go into effect:

Even though some worries about failed payments and revenue losses persist, the Reserve Bank of India is not likely to extend a Friday deadline for companies to install an additional layer of security for customer credit card information, according to bankers and merchants.

Smaller merchants have asked for a postponement of the compliance date, but the central bank has given no indication that there will likely be one, according to three banking and merchant sources with knowledge of the situation who spoke to Reuters.

According to a banker with a sizable state-owned bank, "the general sense is that banks, card networks, and (bigger) merchants are better prepared, so the push from the ecosystem side for an extension has also not been massive and we haven't received any indication to suggest an extension either."

It will come as a surprise if it does, he continued.

India started a massive initiative three years ago to secure card data by requiring businesses to tokenize cards by September 30.

To improve data security, card details are replaced by a special code or token generated by an algorithm, enabling online purchases without disclosing card information.

The RBI first enacted the regulations in 2019 and, following several extensions, has mandated that all Indian businesses delete any stored credit and debit card information by October 1, 2022.

Smaller businesses may run into difficulties, which, according to them, could result in revenue losses for them in the short term, despite the fact that banks, card companies, and large retailers are prepared.

Merchant associations have also reached out to the central bank to see if they can be given more time.

After tokenization standards are implemented, some retailers and bankers worry that card-related transactions may temporarily decline.

"Payments seem to decline the moment another layer of friction is added, and there are concerns that initially we may see recurring decline by similar levels to what we had seen," said Rohit Kumar, founding partner of public policy consulting firm TQH Consulting.

Recurring payments were failing by 10% to 15%, according to merchants, when the previous tokenization deadline was approaching.

Since card information won't be stored on the merchant servers, Rajaram Suresh of Boston Consulting Group said that in addition to payments, other things that need to be stress tested include what happens when a product is returned and other post-transaction flows.

In contrast to India, where it is required, European stakeholders have been urged to tokenize cards for security reasons, Mr. Suresh continued.

However, analysts argue that at a time when digital payments are expected to reach the $10 trillion mark by 2026, tokenisation is imperative. Card or online transaction-related fraud has increased and accounted for 34.6% of all fraud cases in FY21.

Customers may take longer to adopt because they are used to one-click checkout, and some may switch to using cash, but since this makes online transactions more secure, there won't be as much chaos this time around, according to Jagdish Kumar, senior vice president of Worldline India.