Card-on-File Tokenization

Card-on-file tokenization refers to a payment security mechanism in which customers’ card details stored with merchants or service providers for future use are replaced by unique digital tokens. In the context of banking, finance, and the Indian economy, card-on-file tokenization has emerged as a critical safeguard for recurring, subscription-based, and one-click digital payments. It strengthens trust in electronic transactions while supporting the rapid expansion of India’s digital commerce and services ecosystem.

Concept and Meaning of Card-on-File Tokenization

Card-on-file (CoF) arrangements allow merchants to store a customer’s card details securely for future transactions, eliminating the need for repeated manual entry. Card-on-file tokenization enhances this arrangement by ensuring that the actual card number is never stored with the merchant. Instead, a token—generated and managed by authorised payment networks or banks—is stored and used for subsequent transactions.
The token is unique to a specific card–merchant–device or card–merchant combination and has no intrinsic value outside that context. Even if compromised, it cannot be used to reconstruct the original card details, significantly reducing the risk of data breaches and card fraud.

Evolution of Card-on-File Practices in India

The growth of e-commerce, digital subscriptions, and app-based services in India led to widespread adoption of card-on-file models. However, several high-profile data breaches and rising incidents of card fraud exposed vulnerabilities in storing sensitive card data with merchants.
In response, the Reserve Bank of India introduced regulatory measures mandating the tokenization of card-on-file data. These measures prohibited merchants and payment aggregators from storing actual card details and required them to transition to token-based storage frameworks. This regulatory intervention marked a significant shift in India’s payment security architecture, prioritising consumer protection and systemic resilience.

Structure of the Card-on-File Tokenization Ecosystem

The card-on-file tokenization ecosystem involves coordinated participation by multiple entities. Issuing banks validate customer consent and authorise token creation. Card networks generate and manage tokens through secure token vaults. Merchants and payment aggregators store only tokens instead of real card numbers. Customers initiate transactions seamlessly using saved payment credentials without exposing sensitive data.
Regulatory oversight ensures compliance with security standards, consent requirements, and liability frameworks. This multi-layered structure balances convenience with robust risk mitigation.

Role of Banks in Card-on-File Tokenization

Banks play a central role as issuers and authorisers within the card-on-file tokenization framework. They authenticate customers during token generation, approve recurring transactions, and manage risk controls. By reducing the circulation of raw card data, banks lower their exposure to fraud-related losses and reputational risks.
Tokenization also supports banks’ digital strategies by enabling secure recurring payments for utilities, insurance, and subscription services, thereby enhancing customer retention and transaction efficiency.

Role of Payment Networks and Intermediaries

Payment networks and intermediaries provide the technical backbone for card-on-file tokenization. They maintain token vaults, ensure secure mapping between tokens and actual card numbers, and enforce usage rules such as transaction limits and merchant restrictions.
Institutions such as the National Payments Corporation of India support the broader digital payments ecosystem by setting standards, facilitating interoperability, and enhancing security practices. Payment aggregators integrate tokenization into merchant platforms, ensuring minimal disruption to user experience.

Benefits of Card-on-File Tokenization

Card-on-file tokenization offers several advantages for stakeholders across the financial system:

• Enhanced data security by eliminating merchant storage of actual card numbers
• Reduced fraud risk and lower incidence of data breaches
• Improved consumer confidence in recurring and one-click payments
• Regulatory compliance with data protection and payment security norms
• Operational efficiency for merchants through secure and standardised storage

These benefits are particularly significant in India’s high-volume digital payment environment.

Impact on the Indian Economy

At the macroeconomic level, card-on-file tokenization strengthens the foundations of India’s digital economy. Secure recurring payments support the growth of subscription-based services, e-commerce, fintech platforms, and digital utilities. Reduced fraud and dispute resolution costs improve overall system efficiency.
Tokenization also enhances financial inclusion by making digital payments safer and more reliable for first-time users. By fostering trust in electronic transactions, it encourages wider adoption of digital services and reduces reliance on cash.

Regulatory Framework and Consumer Protection

India’s regulatory framework for card-on-file tokenization emphasises explicit customer consent, transparency, and control. Customers can approve, manage, or delete tokens linked to specific merchants, retaining autonomy over stored payment credentials.
The Reserve Bank of India has also established liability protection norms and grievance redressal mechanisms, ensuring that customers are not unduly burdened by unauthorised transactions. These measures reinforce confidence in the tokenised payment environment.

Challenges and Implementation Issues

Despite its advantages, the implementation of card-on-file tokenization presents challenges. Merchants and payment aggregators must invest in system upgrades and compliance processes. Smaller businesses may face higher adaptation costs and technical complexity.
Customer awareness remains uneven, with some users experiencing confusion during the transition from traditional saved cards to tokenised credentials. Ensuring interoperability across domestic and international payment networks also requires continuous coordination.