Card-on-File – Top 5 Things Merchants Must Know

“Card-on-file” refers to the practice of storing a customer’s payment details electronically for future or recurring payments. This stored payment information can then be used for quick, easy and seamless transactions for the customer and the company.

To store a customer’s payment details, the company needs the customer’s consent. However, in subscription business models—in particular—it is also in the customer’s best interests to have their payment details on file so that recurring payments are processed automatically. Businesses that offer card-on-file transactions must be PCI-compliant and must store their clients’ data securely and responsibly.

Top Things Merchants Should Know About Card-on-File Payments

According to the European Central Bank, card payments accounted for 49% of all transactions in 2021, meaning that making the processing of card payments as easy as possible is beneficial to both businesses and customers. These are just some of the benefits of card-on-file transactions:

1. Card-On-File Transactions Are Appealing to Regular Customers

Storing credit card details on your website means that customers don’t need to enter these details every time they make a purchase. This makes future purchases faster and more convenient.

It’s easy for customers to save their payment information. Typically, they enter their card number, expiration date and security code. They are then asked if they want to store the details for use at a later date.

2. Card-on-File Transactions Are Beneficial for Businesses

Businesses that use online payment processing to process card-on-file transactions can enjoy the following benefits:

Storing payment credentials increases the likelihood of repeat business because the customer will remember that the payment process was quick and easy.
Customers who have their card details on file are more likely to complete their transactions, reducing cart abandonment.
An automated payment process can help to reduce manual-entry errors and subsequently lower the risk of chargebacks resulting from merchant error.

3. Card-on-File Transactions Have More Features That Can Benefit Your Business

As your business grows, the features you need may change or expand. These are some of the added benefits of card-on-file transactions:

Resubmission. If a transaction using a customer’s stored credit card details fails, the system can resubmit the card-on-file transaction automatically through the merchant’s payment gateway. A card can fail because the card has expired or because the customer has insufficient funds to cover the payment. A retailer who receives the notification that a payment has failed can make another attempt.

Reauthorisation. Businesses using card-on-file payments can configure their settings to require reauthorisation for future online purchases. This makes the payment process more secure for your business.

Recurring payments and subscriptions. A subscription business model is an excellent way to improve cash flow and ensure repeat business, and the ability to store payment details electronically is a necessary prerequisite. When customers sign up for a subscription, their payment details are typically stored so that they don’t miss any payments. Recurring card-on-file transactions are also known as “merchant-initiated transactions” because they are initiated by the merchant rather than the customer.

One-click transactions. Companies such as Amazon use one-click checkouts that allow customers to complete a transaction in a single click. This is convenient for the customer and also drastically reduces cart abandonment rates.

4. Merchants Must Ensure Secure Payment Credentials and Practices

PCI compliance is a non-negotiable aspect of card-on-file payments, and businesses that use them must process transactions through a PCI-compliant payment gateway.

Best Practices for Secure Payments

Companies should implement all of the necessary protections for their customers’ card numbers, security codes and billing addresses. Best practices for data security include:

Encryption: This process converts text into an unreadable code to protect its contents.
Secure Socket Layer (SSL) certificate: This ensures data transmitted between a web server and web browser stays private.
Limited Access: Access to customer card information should be limited to as few employees as possible.
Updates and Monitoring: Updated software and security measures protect sensitive information and prevent unauthorised access to customer data.

It is the merchant’s responsibility to guarantee that consumers’ data is kept safe and secure. Failure to do so will damage the company’s reputation and may lead to fines and/or legal problems.

5. A Reputable Payment Processing Company Can Help Mitigate Risks

The biggest risk facing companies that use card-on-file transactions is a data breach that allows criminals to steal your customers’ data. A good payment processing company that offers merchant services will provide the necessary security to keep your stored data as safe as possible.

In addition, companies must be diligent about securing their customers’ consent for card-on-file transactions. For example:

Always get consent from the cardholder to store their payment information.
Clearly state how and when customers’ stored payment credentials will be used.
Notify the customer about any changes to the terms and conditions.
Make it easy for customers to change or remove their stored card details from your system and to unsubscribe from subscription products or services at any time.

A Payment Processing Company Can Provide The System Your Business Needs for Secure Card-On-File Payments

Businesses across Europe must keep up with customer demand to stay relevant and provide convenient payment solutions. Whether your business provides products or services that require recurring payments, or you want to make things easier for repeat customers, integrating a payment processing system that can collect payments automatically could revolutionise your business.

If you decide to store customers’ payment details on your website, make sure that your website and payment gateway are PCI-compliant, communicate clearly with your customers regarding the storage and use of their card details and make it easy for customers to remove their card details from your system or opt out of subscription payments at any time. These best practices foster trust and will help to ensure that this payment method ends up being a huge net positive for your business.