What is tokenization and how does it make digital wallet transactions secure?

Nowadays we all make online payments, whether it is on Amazon, Flipkart or any other e-commerce platform. Most people keep their credit card or debit card saved so that they do not have to enter card details every time. But due to this facility, cases of online fraud and data theft have also increased continuously. In view of this problem, the Reserve Bank of India (RBI) has implemented the tokenization system.

This guideline has become fully effective from July 1, 2022. Now no e-commerce website, app or merchant can save the original details of your card (such as 16 digit number, name, expiry date etc.). Instead, now only a token will be saved, which will make your payment even more secure.

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System in Earlier

Earlier when you used to enter card details on a website, it used to save data like card number, name, expiry date and CVV on its server. The advantage of this was that next time you did not have to enter complete information again and again.

But its disadvantage was also big—

If the website data was hacked, your card number and other details could be stolen.
Fraudsters could steal money from your card using those details.

What is tokenization?

Tokenization means using a unique code (token) instead of your real card number.

For example:

Earlier Amazon or Flipkart used to save the full number of your card.
Now a token (like “ABX3928XYZ”) will be saved in its place.

This token will work only for that website and the same card. That is, if you have saved the card on Amazon, then the same token will work only on Amazon. The same token will not work on Flipkart or any other platform.

Example of offline transaction

RBI has also given the example of offline banking to explain this.

Earlier, when you used to go to withdraw money from the bank, the cashier used to get a token or slip before giving the money.
That slip was the proof of your verification.

Similarly, now a token will be used instead of your real card details in online payments.

How will tokenization work?

Suppose you bought a product from Amazon and used your card at the time of payment.

Amazon will no longer save your card number with itself.
The card network (such as Visa or Mastercard) will verify your card.
After that a unique token will be generated.
This token will be saved with Amazon, but your real card details will be only with your bank and network company.

Management of more than one card

Many people have cards of 3-4 different banks. In such a situation, the question arises that how to remember which card is saved where?

When you save the card on Amazon or Flipkart, the name of the bank and the last four digits of the card will be visible there.
This will let you know which card is being used.

Will I have to enter OTP every time?

Yes, security processes like OTP and CVV will remain the same as before.

Tokenization is only to keep your card details safe.
But OTP, CVV and other steps will always be there for real transaction verification.

Why is tokenization necessary?

Protection from data theft – Even if the server of a website gets hacked, only the token will be found there, not the real card details.
Reduction in online fraud – Fraudsters will not get information like card number, expiry date.
User trust – Now people can make online payments without worry because their data will not be misused.

Tokenization vs. Traditional Encryption

Now many people will think that if there is encryption then what is the need for tokenization? So now it is very important to understand one thing here that what is the difference between tokenization and encryption. Many people consider both to be the same, but in reality the way both work is different. Let’s compare once-

What does encryption do?

Suppose your card number is 1234 5678 9012 3456.
In encryption, this number is converted into a code by a mathematical formula (mathematical algorithm).
But the real data (i.e. card number) is still stored somewhere.
If someone gets to know that “key” or algorithm, then he can break the encryption and extract your real card number again.

That is, in encryption the data is hidden, but not erased.

What does tokenization do?

In this, your real card number is not stored at all.
In its place, a unique token (eg AXY-9876-PQR) is created.
This token will work only for that card and that merchant (eg Amazon, Flipkart).
If a hacker steals that token, he cannot use it anywhere else, because he does not have the original card data.

Difference in simple language

Encryption: The original data is there, it has just been locked in a lock. If the key is found, the lock will open.
Tokenization: The original data is not there, a fake code (token) has been placed in its place. No one can extract the original data from the fake code.

Point of Difference	Tokenization	Traditional Encryption
Basic Idea	Replaces sensitive data (like card number) with a random token that has no meaning.	Converts sensitive data into unreadable form using a secret key.
Reversibility	Token itself cannot be reversed back unless you look into the secure token vault.	Encrypted data can be reversed back into original data if someone has the correct decryption key.
Security Nature	Even if a hacker gets the token, it’s useless without the vault.	If a hacker gets the encrypted data and also steals the key, they can unlock the original information.
Use in Transactions	Mostly used in digital payments, wallets, and card security because only tokens move around.	Used in general data protection like files, messages, databases where information needs to be hidden but retrievable.
Performance	Faster, because it doesn’t involve heavy math – just replaces data with tokens.	Slower compared to tokenization because it needs complex algorithms for encryption and decryption.
Example	Your card number 1234 5678 9012 3456 becomes a token like Ax45YzP9 – looks random and meaningless.	The same card number is encrypted into something like gT67#@8Hj9Lp – unreadable but can be decrypted with the key.

Benefits of Tokenization for Consumers

Now friends, the question arises that what will be the benefit to the consumer i.e. common people from this? Let us understand it point by point.

Protection from data theft

Earlier, if the server of an e-commerce site was hacked, all the card numbers, names, expiry dates etc. saved there would be stolen.

But now only the token will be saved there, which has no value. Even if the hacker gets the token, he cannot withdraw your money from it.

Decrease in cases of fraud

Nowadays you must have heard that many people get calls from people who have almost all the details of their cards – only the CVV is missing.

These details mostly leak from where you have saved the card.

After tokenization, the card details will not be saved anywhere, so the chances of the details reaching the fraudsters will be greatly reduced.

Unique security for every website

Suppose your SBI card is saved on both Amazon and Flipkart.

A separate token of SBI will be created for Amazon.
A second token of the same card will be created for Flipkart. This will ensure that even if data is leaked on one site, it will not affect the other site.

User trust and convenience

Many people are afraid of saving card details online lest the data gets stolen.

But tokenization will eliminate this fear to a great extent.

You will not need to enter the full card number again and again.
Also, there will be assurance that your real card details are not saved anywhere.

Promotion of digital payments

When security is strong, people will make more and more online payments. This will reduce the use of cash and strengthen Digital India.

👉 So friends, in this way you can see that tokenization not only secures your card but also gives you peace of mind that your real data is no longer lying on any website or app.

Future of Tokenization

Now let’s talk about the future – tokenization is going to be even more powerful in the coming time:

Biometric + Tokenization Combo: Token mapping with fingerprint or face ID → means even more secure multi-layer protection.
AI-Based Fraud Detection: Artificial intelligence will analyze whether any suspicious transaction is taking place and will block the token at the same time.
Cross-Platform Security: The same token will work safely in different devices (mobile, smartwatch, IoT).

👉 Meaning that in the coming time, tokenization will not only be a part of secure payments but will also be a part of smart fraud prevention.

Important questions related to tokenization

Will it apply to both debit and credit cards?

Yes, this rule applies to both.

Is it applicable only to Visa and Mastercard?

Tokenization in India is applicable to Visa, Mastercard, and RuPay cards, not just Visa and Mastercard, as of August 2025.

Is it applicable to international transactions as well?

No, at present it is applicable only to transactions taking place in India. It has not been implemented on international card transactions yet.

Will there be any charge for this?

No, it is absolutely free.

Will there be a separate token for each website?

Yes, Amazon’s token will not work on Flipkart. Meaning, a separate token will be generated for each merchant.

If you have an SBI credit card and you want to use it on Amazon, Flipkart and Swiggy, then a separate token will have to be created everywhere. Some questions are also answered by RBI Official website (see RBI Official FAQs about Tokenization).

Conclusion

The tokenization system implemented by RBI is a big step towards making online payments even more secure. Now e-commerce platforms will not be able to save your card details. In their place, a unique token will be generated, which will greatly reduce the chances of fraud and data theft.

This system is completely beneficial for you. You will not have to pay any additional charge. Your payment process will remain almost the same as before. The only difference will be that now your card details will be used in a secure manner.

About the Author

Priyanshu Pathak

I am Priyanshu Pathak, a technology enthusiast and independent blogger with a keen interest in exploring and learning new digital trends. My passion for technology inspired me to create this blog, where I share my knowledge and experiences in simple, easy-to-understand words.

Along with technology insights and tips, I also write honest software reviews and blogging guides to help readers make better decisions. My aim is to simplify technology and present it in a way that everyone can understand without complexity.