The global surge in digital payments, accelerated by the pandemic, introduced many first-time users to the convenience and efficiency of digital transactions. Per IDC report, In SE Asia alone, digital payments is projected to grow by 162% to $179 billion by 2025. 

There will be 188 million new users of digital payments in South East Asia by 2025. The largest markets for digital payments are projected to be Indonesia ($83 billion), Vietnam ($35 billion) and Thailand ($32 billion). Additionally, cash will see a major decline across Philippines, Vietnam and Thailand. As per Google, Temasek Bain & Company 75% of the population across six major Southeast Asian countries have access to internet with majority of them having shopped online at least once with more than 60 million first time users of digital services. 

According to bloomberg media, Indonesia has emerged as the largest digital payments market in ASEAN. The volume of payments jumped almost 40% in 2020, and e-commerce platforms doubled their transactions to about 430 trillion rupiah (about US$30.1 billion). 

With growing adoption of digital payments, security is paramount without compromising the user experience or adding friction to the payments flow. To support the booming subscription economy, recurring payments (standing instructions, bill payments, online subscriptions) should be a breeze where customers trust the merchant and store their card data on the merchant’s website or app (known as Card on File) at the time of payment enrollment using explicit customer authentication. While customers enjoy the convenience of not entering payment data every time, merchants benefit from higher success rates and minimized dropouts at checkout.  

In such a scenario, data protection, security, and data governance are essential for merchants when collecting and storing customer sensitive card data in their own format with varied degrees of security standards. Even one weak link by any merchant can expose entire customer data to bad actors, putting the entire ecosystem at risk. For instance, in the event of a breach, customers may need to cancel their cards and delete stored card data at all merchant locations, while issuing banks will have to deal with chargebacks and merchants will face liability pressure.

Payment card ‘Tokenization’ could be a silver bullet that precisely tries to address situations envisaged above. In addition to card on file storage, it also paves way for more use cases eg. device based tokenization (storing card credentials securely on the users trusted device) for contactless tap/wave and pay at transit, mobility or fast check out solutions. As devices get connected, IoT is on the rise, embedded, invisible payments will be the future closely coupled with subscriptions wherein your car can make automated payments at toll, pay at a drive or your refrigerator can order groceries automated when the stock depletes.  

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In India recently RBI (Reserve Bank of India) has mandated that merchants, acquirers and payment gateways should store the customer card information only in a tokenized form, laying ground for Issuers and card networks to provide secure tokenization solutions with customer friendly directive to manage their tokens transparently. This will be a major boost for digital economy while laying strong foundations for data privacy. 

So, what is a token and why is it so secure while being so flexible? Token is an alias/substitute for a real card or payment data that is irreversible and highly secure as compared to encryption which is a reversible process. When merchants implement tokenization to store the card data, every token that is generated for the same card number is unique per merchant which cannot be used at any other merchant. This ensures that any weak link or in case of a data breach, the token is rendered useless by the bad actors. Customer can simply generate a new token only for that merchant while continuing to use their card at other merchant locations. This also takes away the liability shift from merchants whilst minimizing chargebacks for Issuers.  

Taking a cue from India, Issuers can also come up with their tokenization solutions in conjunction with card network to offer their acquirers, payment gateways and merchants a standardized tokenization solution to bring in consistency and security across the ecosystem for not only tokenizing the cards but also tokenize wallets and any sensitive payment handles/identifiers. 

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