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What Is Card-on-File and Why Do Businesses Need It?

Boaz Gam

Boaz Gam


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4 min
Article content
  1. What Exactly Is CoF and How Does It Work?
  2. Card-on-File Advantages
  3. Main CoF Challenges
  4. Use Cases of CoF Payments
  5. Is Card-on-File Worth Implementing?

Card-on-File: What It Is & How It Boosts Checkout

Merchants nowadays are continuously searching for ways to streamline the payment process to cater to customers who appreciate shopping with speed and convenience. While there are multiple ways of achieving it, card-on-file (CoF) transactions remain one of the most effective tools to optimize the checkout process and boost sales.

This guide contains all the information you need to know about CoF, including an explanation of how it works, examples of its use cases, a list of its benefits and challenges, and tips on its implementation. Read ahead not to miss out on any of these valuable insights!

What Exactly Is CoF and How Does It Work?

Card-on-File: What It Is & How It Boosts Checkout

The card-on-file concept is very straightforward: it is a practice when a business stores the payment card data with the cardholder’s consent. These saved details are used for future payments to ensure a faster and smoother checkout process.

There are two types of card-on-file transactions:

  • Consumer-Initiated Transactions (CITs). This method is applicable when the customer is physically present when providing their payment data to the merchant. It usually occurs either at a POS terminal of a brick-and-mortar store or at a checkout page online.
  • Merchant-Initiated Transactions (MITs). This approach requires a CIT to take place previously so that the merchant is authorized to initiate a payment without the cardholder being present and no extra verification required. MITs are typically used for automated billing and subscriptions.

There are multiple ways in which businesses can receive consumers’ consent to store payment data, such as by prompting them to:

  • Use their debit or credit card at a POS terminal and sign a receipt
  • Fill out a form online
  • Share their bank card details during a phone call

Aside from being fairly easy to implement, card-on-file transactions have a plethora of other benefits for both businesses and consumers.

Card-on-File Advantages

Card-on-File: What It Is & How It Boosts Checkout

While CoF is a simple tool at first glance, implementing it is extremely effective for businesses. Card-on-file transactions play a critical role in:

  • Ensuring a faster checkout experience. Not having to fill in all the payment details is a relief for consumers, as it makes swift one-click transactions possible.
  • Improving the cash flow. An efficient checkout process promotes a more consistent cash flow. In addition, CoF creates an opportunity for businesses to offer subscription plans and ensures the invoices are paid on time.
  • Boosting the consumer retention rate. A smooth payment experience creates a competitive advantage for businesses and encourages their customers to make repeat purchases.
  • Leveraging advanced security solutions. CoF is extremely secure, as it typically uses encryption and tokenization to effectively prevent fraud when storing sensitive data.
  • Minimizing the need for staff effort. Due to automated payment collection offered by CoF, employees don’t face the need to remind customers about upcoming payments and manually input their payment data multiple times.

As you can see, the benefits are plenty - but does CoF have any downsides?

Main CoF Challenges

Card-on-File: What It Is & How It Boosts Checkout

While CoF has significantly more pros than cons, there are a few challenges merchants need to be aware of:

  • Possible consumer hesitation. Cautious customers may be hesitant to allow merchants to store their payment data due to the risks of encountering dishonest players.
  • Regulations compliance. The storage of payment data requires businesses to comply with PCI DSS.
  • Manual card details updates required. Consumers need to update their payment details if their card expires or they lose it.

Use Cases of CoF Payments

Card-on-File: What It Is & How It Boosts Checkout

Given the abundance of CoF’s advantages, it is no surprise that it is implemented across a variety of industries and business models. Here are some examples of its use cases:

  • Subscriptions - CoF is extremely convenient for recurring subscription payments, as the cardholder can be billed periodically without any extra confirmation steps.
  • Buy Now, Pay Later services - BNPL providers often choose to enhance the consumer experience by saving card details with the help of CoF.
  • Mobility and delivery apps - Applications that provide transportation and delivery services often turn to card-on-file to prevent their customers from re-entering the same information for every ride and order they make.
  • Hospitality and travel - Frequent travelers know how tedious it can get to enter the same payment details over and over again. CoF solves this problem and ensures the payment process is simple and smooth.
  • Cashierless stores - Autonomous stores use AI-based solutions to detect the consumers’ shopping process and charge them accordingly as they leave. CoF is typically used to complete the payment during the walk-out stage.
  • Unified commerce businesses - Retailers applying the unified commerce model can implement CoF to collect payment data via one platform to simplify the checkout process across all channels they are using.

These are just some examples of where card-on-file transactions can be implemented. As the popularity of digital commerce continues to increase, CoF becomes a standard practice at more and more establishments and gradually transforms into an essential feature of the shopping experience that consumers expect to be offered.

Is Card-on-File Worth Implementing?

Card-on-File: What It Is & How It Boosts Checkout

Card-on-file transactions have a wide scale of implementation and a multitude of benefits for businesses and customers alike, which contributes to the growth of their presence. As a result, CoF is becoming so commonplace that merchants who don’t offer this feature risk being left behind.

Thus, if, after checking out the information provided above, you see an opportunity for your company to leverage the power of card-on-file, it is best not to miss out on it.

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