Fortifying Embedded Payments: The Role of Tokenization

The Evolution of Digital Transactions

Over the past decade, the landscape of digital transactions has significantly altered how we engage in commerce globally. This shift has provided consumers with enhanced speed, convenience, and transaction security. Among these aspects, safety remains a paramount concern within the payments ecosystem, particularly given the surge in digital commerce and the rise in data breach attempts and Man-in-the-Middle (MITM) attacks.

Since 2019, numerous banks and financial institutions have experienced data breaches that have impacted millions of users. In 2021, the frequency of cyberattacks and data breaches rose by over 15 percent compared to the previous year. These incidents represent only a fraction of the overall issue—beyond exposing customer data to malicious entities, they can severely damage a company’s reputation, which takes years to establish. Furthermore, projections suggest that by 2030, 74 percent of digital payments will occur through embedded platforms that integrate financial services into non-financial companies’ offerings, making the protection of consumer data more vital than ever.

Read: Identity Fraud: How Much Banks Lost in 2024?

Enhancing Security Through Tokenisation

Since the early 2000s, following the RBI’s approval of smart debit cards, there have been numerous regulations concerning card issuance and innovation. Security measures such as two-factor authentication (2FA), online alerts, compliance with PCI DSS standards, and the mandatory issuance of EMV chip cards have all been enacted over the last decade. The most recent advancement in this series of security innovations is tokenization. Tokenization has garnered significant attention from the RBI in recent years and is a globally recognized technology that enhances security while providing a smoother customer experience. Using tokenization, merchants are prevented from storing customer payment information; instead, they utilize a ‘token’ generated by the payment network for transactions. Since tokenization obscures the card number, sensitive information remains accessible only to issuers and card networks, with merchants only able to view the generated network token. This technology allows consumers to carry out recurring payments seamlessly without the concern of updating details when a card expires or is reissued, as the network token remains valid for a designated merchant or device once created.