With the global recurring payments market size expected to grow by 6.9% between 2023 and 2033, this emphasises consumers’ increasing preferences towards flexible and convenient payment options. This is where card on file (COF) transactions come into play, which can assist merchants in streamlining their operations, increasing customer satisfaction and driving business growth.
In this article, we’ll delve into what card on file is, how it works, its main uses and the key advantages of this functionality.
What is card on file?
Put simply, card on file refers to securely storing a customer’s payment card information with their consent for future or recurring transactions. Subsequently, this enables two types of transactions: Merchant-Initiated Transactions (MIT), where the merchant utilises the customer's card for future payments (e.g. subscriptions and memberships), and Cardholder-Initiated Transactions (CIT), where the customer initiates the transaction themselves (further details on this below).
This dual approach allows customers to make future payments quickly and conveniently, while simultaneously enabling merchants to streamline their payment processing
What are the different types of card on file transactions?
Card on file transactions can be used for various purposes and industries. Below we’ve outlined two different types of transactions that typically utilise card on file payments.
Recurring payments
By securely storing customers' card details, merchants can automatically bill them on a regular basis without them needing to manually enter payment information. This streamlines the payment process for both merchants and customers. A few examples of businesses who can benefit from card on file transactions for recurring payments are:
- Subscription services, such as streaming platforms
- Utility and phone service providers, such as electricity providers
- Gyms for membership fees and class bookings
- Buy Now Pay Later (BNPL) providers for instalment payments
One-off payments
Merchants can also leverage card on file for one-off transactions where consumers don’t need to set up recurring payments. For this, merchants can offer the option for customers to save their card details for repeat purchases, making it easier for them to complete subsequent transactions in the future. This can help improve conversion rates and enhance the overall shopping experience. Here are some businesses who can use card on file for one-off payments:
- Ridesharing and food delivery services: These companies can simplify one-off payments by utilising card on file. Customers can store their payment information securely, allowing for seamless transactions after each ride or delivery without the need to re-enter payment details.
- Hotel and accommodation businesses: Hotels, resorts and rental accommodations such as Booking.com or Kiwi, often use card on file to take payments for future bookings. This allows guests to secure their reservations without immediate payment, providing convenience for both the customer and the business.
- Fashion and retail outlets: eCommerce retailers specialising in fashion and retail goods can also benefit from one-off card on file transactions. By offering customers the option to securely store their payment information, these retailers streamline the payment process and consumers can checkout quicker. This not only enhances convenience for shoppers but also encourages impulse buys and repeat business, ultimately boosting sales and customer satisfaction.
What is the difference between card on file and tokenisation?
Card on file and tokenisation are both payment solutions that allow customers to save card information for future purchases, while enhancing transaction security. However, there are subtle differences in how they carry this out:
- Card on file securely stores the payment details on the merchant's system. This method simplifies subsequent transactions by allowing the merchant and customer to access the stored card details directly.
- Tokenisation is an additional security measure that merchants can use to safeguard stored customer data, which replaces sensitive card data with a unique identifier or token. Depending on the type of tokenisation, this token will only be interpretable by the payment provider or card scheme, thus adding an additional layer of security. Tokenisation ensures that the actual card details are never exposed during a transaction, mitigating instances of fraud.
In practice, card on file and tokenisation work side by side to guarantee customer security for recurring payments. While card on file facilitates seamless transactions by storing card details directly, tokenisation adds an additional layer of protection by substituting them with unique tokens.
How do card on file transactions work?
Below, we've outlined the steps that merchants generally need to follow for recurring transactions such as subscriptions or memberships:
- Firstly, to store customers' data, the consumer must consent to save their card information and provide these details to the merchant. Additionally, the customer will need to accept the Terms and Conditions (T&Cs).
- Next, the merchant securely collects the customers’ card information, either in store, over the phone or via an eCommerce website. These details are then safely stored in a PCI DSS compliant payment processing system.
- Finally, the customer will then be charged on an agreed upon schedule based on the terms and conditions they signed initially.
How are card on file transactions initiated?
Now that you know how COF transactions work, it is important to understand the different ways in which card on file transactions can be initiated.
Consumer-initiated transactions (CIT)
In consumer-initiated transactions, customers authorise merchants to store their card details during the checkout process to use for repeat purchases. The stored information is securely encrypted and stored in compliance with industry standards such as PCI DSS. When the customer goes to make a future purchase from the merchant’s website, they select their saved card and proceed to make a purchase, without any action needed from the merchant’s side.
Merchant-initiated transactions (MIT)
By contrast, merchant-initiated transactions occur when merchants securely store customers' card details for future billing, such as subscription services. Usually, the initial amount may differ, while all subsequent transactions are the same. It is important that the merchant clearly displays the subscription plan to the customer on the initial payment, and if the plan has specifics in the amount, this should be shared in advance with the customer. For the subsequent payments, merchants will use the stored card information to initiate transactions on behalf of the customer, without requiring additional authorisation for each transaction.
Benefits of card on file payments
As we have observed, one of the primary advantages of card on file transactions for customers is its ability to enable them to execute recurring payments conveniently by eliminating the need to manually input their payment details for each transaction.
However, beyond this, there are several benefits for merchants as well. These encompass, but are not confined to, the following:
Streamlined payment processing
Card on file payments remove the need for customers to manually enter in payment details each time a purchase is made. This helps to streamline payment processing for merchants, while regulating their cashflow by collecting payments at set intervals.
Less cart abandonment
By simplifying the checkout process, card on file payments help reduce cart abandonment rates, as customers are more likely to complete their purchases when payment information is already stored and can be readily used for purchases.
Better customer retention
Offering COF payments can increase customer satisfaction and loyalty. Once customers have their payment information stored securely, they are more likely to return for future purchases due to the ease and speed of making payments. This can lead to repeat business and long-term relationships with the merchant.
How can emerchantpay help you?
As a PCI level 1 compliant payment service provider (PSP), emerchantpay can help you to store customers’ card details securely for future purchases, alongside providing advanced fraud-mitigating solutions like tokenisation and 3DS2. On top of this, our all-in-one payments package includes access to a dedicated Account Manager, 24/7 technical support and a Risk Analyst by your side, helping you to minimise risk and improve acceptance and conversion rates.
With our card on file solution, you’ll be better positioned to offer your customers a fast and secure payment experience, while ensuring customer loyalty and encouraging repeat spending.
Want to learn more about our card on file solution and how you can optimise your payments strategy? Talk to our payment experts today.