Card-on-File TransactionsWhy More Merchants Are Saying “Here, Let Me Hold That For You.”

April 26, 2023 | 12 min read

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Card-on-File Transactions

In a Nutshell

Keeping a customer’s credit card information on file can be a convenient perk for shoppers, and can deliver substantial ROI for merchants. But how exactly does the card-on-file process work? Are there any downsides? We’ve got the answers right here.

How Card-on-File Transactions Can Keep Customers Happy & Coming Back, Again & Again

Whether it’s free shipping, expanded purchase options, or 24/7 customer service, more and more shoppers have come to expect perks that would’ve been unthinkable even a decade ago. Consumers have developed an “on demand” mentality that’s come to shape their expectations of merchants. 

This can pose some problems. Many merchants have had to make radical changes to their policies just to stay competitive. Not all these changes demanded radical shifts in thinking, though. Sometimes, it’s as simple as hanging onto a few lines of cardholder information.

Offering “card-on-file” transactions typically requires minimal investment. However, it can start delivering substantial return on investment almost immediately.

In this post, we look at what card-on-file transactions are, and explore some of their advantages and challenges. We’ll see why it’s an increasingly popular option for paying online or even in-store, and also, how to manage this practice properly.

What Are Card-on-File Transactions?

Card-on-File Transaction

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A card-on-file transaction is a transaction conducted using consumer pay payment information stored by the merchant and attached to a customer’s profile. That information can be used to conduct future purchases, with a streamlined process for the cardholder, or even no need for the cardholder’s direct involvement at all.

In simple terms, card-on-file (or CoF) sales are simply transactions paid for using information that the merchant already has in their database. At some point, the cardholder made an initial transaction, and during that process, authorized the seller to use their payment data for future charges.

CoF lets merchants quickly and easily set up recurring payments for customers. A buyer can maintain an ongoing subscription, for instance, without repeatedly having to key in their card information and authorize each transaction. Not only is it easier on the buyer, it virtually eliminates the possibility of them accidentally entering the wrong card information at a later date. 

That means sellers have more consistent, predictable incoming revenue. Keeping cardholder information on file can also help streamline operations and prevent errors.

Did you know? Many fraud attacks originate with consumers after the transaction has completed. Talk to us about an end-to-end fraud prevention strategy.REQUEST A DEMO

Why Would Merchants Store Customer Card Information?

As we established above, card-on-file transactions can simplify and streamline the purchasing process for customers, which is reason enough on its own. However, there are other benefits to consider, too.

Establishing a card-on-file policy can let merchants:

  • Increase Checkout Performance: Merchants see higher conversion rates and less shopping cart abandonment with fewer roadblocks during checkout.
  • Decrease Fraud Management Costs: Merchants don’t have to bother validating buyers when their information is already on file. Verifying an initial transaction is enough.
  • Increased Customer Retention: Satisfied customers tend to stick around. And, by giving customers an easier, friction-free experience, merchants help ensure they keep coming back.

Card-on-file is a key component of operations for merchants whose business model includes recurring billing. There are other use cases, as well, though. To illustrate:

  • Transportation and food delivery apps leverage card-on-file to streamline the customer experience.
  • Hotels and car rental services can use card-on-file to cover “no-show” charges, incidental fees (like room service), and theft or damages.
  • Stores who offer buy now/pay later options are sure to be paid if they already have a card-on-file.

While it’s not in widespread use yet, there is a growing number of autonomous “no checkout” retailers. These organizations rely on card-on-file transactions, too. Consumers scan a card upon entry, then pick up the items they want. Existing card information is used to complete the payment when the customer leaves the store.


Say you operate a small pizzeria. You have customers that order delivery through your website on a regular basis. Typing in all that card information can be time-consuming; all those extra minutes spent keying-in information represent friction that might deter a customer. Not only that, but each time they key-in information, there’s a chance the buyer may make an error. This would result in a failed authorization request.

Instead, let’s say a customer can simply click a small box that says something like “Use this card for future orders.” This authorizes you to keep the card information on file. If everything checks out, all orders from then on can be paid for at the click of a button, eliminating errors and cutting down friction.

Who Initiates a Card-on-File Transaction?

There are two distinct types of card-on-file transactions. Both require a previous purchase by the cardholder, at which time the merchant cached the card data in a secure location.

Before the merchant can actually use the card for a purchase, they must obtain the cardholder’s permission. This often involves the user signing a credit card authorization form, a document that gives the “OK” to charge their card on an ongoing basis.

Once all the permissions are in place, a transaction can be initiated by either the customer or the merchant:

Cardholder-Initiated Transactions (CIT)

Cardholder-initiated, card-on-file transactions involve a consumer being present for the sale and providing their payment credentials. This doesn’t necessarily mean physically present: a CIT can be made through an in-store terminal, but it can also happen online through a checkout experience.

The key point is that the cardholder gets the ball rolling by opting to pay with card information previously used and stored on file with the merchant.

Merchant-Initiated Transactions (MIT)

For merchant-initiated transactions to take place, the cardholder must authorize the merchant to do more than must have card data on file. They’ll also need permission to initiate a payment without the cardholder being involved, and without requiring additional verification.

Why Would a Merchant Initiate a Transaction?

With a cardholder-initiated transaction, the cardholder gives their permission to use their data for the purchase on a one-time basis. With a merchant-initiated transaction, the cardholder gives permission to use the card for future purchases without first requesting the buyer’s authorization. Obviously, there are limits to that use, usually spelled out at the time at which the card information is retained on file.

MITs are useful in a variety of situations. The main place they come into play is recurring billing. In many instances it is beneficial to both the merchant and the customer to have billing done automatically. Examples include:

  • “Software as a Service” Subscriptions (Gmail, Microsoft Office, WhatsApp)
  • Streaming Services
  • Monthly “Box” Services (LootCrate, HelloFresh, Dollar Shave Club)
  • Replenishment & Recurring Orders (Chewie, Amazon Subscribe & Save)
  • Installment Payments
  • Automatic Bill Pay
  • Delayed Charges

MITs can also be used to recover past due or non-payment charges, as well as to assess penalty charges or late fees.

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Card-on-File Transactions: Benefits vs. Challenges

The main advantages of using card-on-file are the speed and convenience of the customer checkout experience: as we mentioned earlier, simple checkouts tend to increase customer loyalty and retention. A shopper who knows they can buy with a mouse click or finger tap has incentive to keep buying from the same merchant, especially if they haven’t established accounts with other vendors.

Other benefits include:

Reduced Cart Abandonment

A customer with a full shopping card gets to checkout and realizes they left their credit card in another room. They may decide to finish the order later, but never get around to completing the purchase. Having card information already on file can prevent this.

Regulate Cash Flow

Card-on-file transactions make it easier to collect payments from customers on time for better budgeting. It also lets the merchant offer subscription plans, which further standardizes cash flow.

Lower Administration Costs

Collecting payment information can tie up a lot of resources. Card-on-file can cut down the number of transactions that need to be keyed in. And since CoF is mostly automated, staff are saved from sending payment reminders or chasing down overdue payments.

Increased Security

Card-on-file services typically leverage technologies like tokenization and encryption to help protect transactions when cardholders use risky internet connections. Plus, anyone storing sensitive data will, by necessity, follow the most stringent security standards

At the same time, there are a few challenges that we need to address as well. These include:


Wait… wasn’t security one of the advantages of CoF? Yes, but that’s a double-edged sword. On one hand, stored data is secure, but guess who’s providing that security? All those extra precautions will have to be implemented and monitored by the merchant. Most find it much more profitable to let a third party handle storage.

Customer Acceptance

Again, there’s a good side and a bad side here: customers love the convenience of having a card-on-file, but they can be less happy about having to keep their account details up-to-date. If an order won’t go through due to lost, stolen, or expired cards, the merchant could lose the customer, even if the problem is on the buyer’s end.

Data Breaches

Just because one merchant keeps customer data secure, it doesn’t mean everyone else is. Fraudsters who commit data breaches may use stolen card information to make purchases. That usually results in the customer filing a chargeback. The merchant may not be at fault, but it can still cost them time and effort.

Buyer’s Remorse

Easy payments facilitated by CoF may lead to impulse buying. Or, maybe a buyer meant to cancel a subscription, but forgot to do so. Both of these can lead to buyer’s remorse, which is one of the leading causes of chargebacks.

Merchant Tip:

Keeping current with customer payment information is one of the benefits digital wallets have over conventional card purchases. With eWallets, Customers payment details are updated automatically, even if the card attached to the account expires. There’s also Visa Account Updater, which fulfills a similar function.

Best Practices for Card-on-File Payments

Merchants rely on customer trust when conducting card-on-file transactions. To that end, here are a few best practices that we recommend for merchants to both streamline their operations and also maintain their customers’ trust:

Understand the Stakes

Merchants are responsible for any cardholder information they keep on file. Adhering to PCI compliance standards is a “must do” for any merchant. This will impact the way in which that merchant stores information, and the equipment and service providers they may use.

Know Your Equipment

Like we mentioned, PCI standards will govern how merchants connect and interact with third parties. Sellers need to ensure their point-of-sale terminals, as well as all other technologies, are PCI compliant. Also, understand those technologies inside and out, and research and evaluate any potential vulnerabilities that might expose customers’ data.

Store the Right Information

Merchants can store key pieces of information, including cardholder name, card number, billing address, etc. However, they should never store the card security number (the “CVV” or “CVC”). This information should be verified for an initial transaction, but never stored or retained.

Encrypt Sensitive Information

Any data stored by merchants should be encrypted. This puts up an additional layer of protection, just in case a bad actor manages to gain access to the merchant’s database. There are many third-party service providers that offer secure storage, and only transmit data using tokenization technology.

Card-on-file transactions are becoming more common all the time, and they offer a multitude of benefits for merchants and cardholders alike. Businesses that don’t offer this feature may be at a disadvantage compared to other merchants.

That said, CoF presents certain risks, such as a potential rise in chargeback activity. The experts at Chargebacks911® understand the importance of transparent, end-to-end prevention and resolution solutions. If you’d like to know more, call us today.


What does card-on-file mean?

“Card-on-file” refers to an agreement that allows merchants to save payment details to a customer profile, then use that information for future purchases, with no need for the cardholder’s direct involvement at the time of purchase.

A card-on-file transaction is a transaction conducted using consumer pay payment information stored by the merchant and attached to a customer’s profile. That information can be used to conduct future purchases, with a streamlined process for the cardholder, or even no need for the cardholder’s direct involvement at all.

What are the benefits of card-on-file transactions?

Among other things, merchants benefit through keeping customers happy, reducing administration needs, and increasing retention. The advantages for consumers include speed and convenience.

What is an example of a card-on-file transaction?

Common examples include streaming services, club memberships, or regular delivery of items such as pre-made meals or pet supplies. CoF can also be used for “one-click” purchases.

Do merchants need permission to keep a credit card-on-file?

If a customer has purchased from a business, that merchant is legally allowed to store the cardholder’s payment information. However, there are limitations. The merchant is contractually obligated to protect personal information. Also, key data elements, such as the card security code, or CVV, cannot be stored.

The merchant also needs express permission to use the card information for future purchases.

Are card-on-file transactions safe?

Yes. When handled correctly, card-on-file is as safe as any other payment method. 

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