What Does Credit Card on File Mean?

Credit card on file transactions store customer card information for future purchases, offering convenience but requiring strict compliance with security standards.

Main Points:

• Card on file transactions enhance convenience for recurring billing and frequent purchases.

• Customers must opt-in and consent to storing card information.

• PCI-DSS compliance is crucial for security and legal adherence.

• Pros: Convenience, security tools, encourages sales.

• Cons: Compliance needs, costs, card data expiration.

• Swipesum optimizes payment strategies for businesses, ensuring efficiency and reduced costs.

Customers have plenty of options to pay with credit and debit cards in the modern marketplace.  

Of course, the old standby of physically providing a card for an in-person transaction is still popular. However, the explosion of digital transactions has opened the door to other card payment methods that can be more convenient for both customers and merchants.

Credit card on file transactions are an especially popular type of card-not-present transaction. Keep reading to learn more about card on file transactions, the importance of credit card on file agreements and policies, and more.

Looking for a way to sustainably and substantially improve your business’s payment strategy? Swipesum helps merchants just like you optimize their approach to payments. Our expert consultants can help you find the best fit for payment technology and tools and negotiate lower merchant fees on your behalf.

Best of all, this payment optimization service comes at no cost to your business. Book your free consultation to learn more!

What is a Credit Card on File Transaction?

A card on file transaction uses credit or debit card information stored by a merchant. That’s in contrast to a standard transaction, where the customer physically presents their card or enters the details into a secure form in an online transaction.

The clearest benefit of a card on file transaction is convenience, as Stripe points out. There’s no need for customers to find their cards or key in the relevant details for a purchase. Instead, the stored payment information is used to complete the checkout process.

Card on file transactions are common in relation to subscription purchases and recurring billing. Subscription box services generally send out a new package to customers on a regular basis (often each month) and automatically bill their subscribers. Streaming content providers generally bill customers in the same way, charging a card on file at the end of each billing cycle.

A card on file approach can also be beneficial when customers regularly make purchases from a single retailer or marketplace. Having a card on file makes the buying process that much easier, allowing customers to use their preferred card quickly and easily.

Customers must opt into credit card on file transactions. This generally happens with a subscription agreement or, after a purchase, a customer consents to the merchant storing their card payment details. As a merchant, you can’t make the decision to keep customer information on file without notifying and gaining consent from customers.

Holding onto sensitive payment information presents risks that aren’t present in standard credit card transactions. That’s what makes credit card on file policies especially important.

What are Credit Card on File Policies?

A credit card on file policy helps merchants maintain compliance with payment industry rules and federal and state laws related to payment information. From an industry perspective, the Payment Card Industry Data Security Standards (PCI-DSS) set the requirements for retaining customer credit card data.

One of the foundational rules set by the PCI-DSS is the responsibility of merchants to protect stored cardholder data. The industry regulator sets higher security standards for businesses that keep credit cards on file. This sensitive information can be an attractive target for cybercriminals, so keeping it secure is a top priority.

Along with gaining customer consent, key compliance requirements set by the PCI-DSS for keeping customer card data on file include:

• Only storing card details when there is a clear business need to retain this information.

• Retaining only cardholder data, such as the account number and cardholder name. Businesses should never store authentication details, like the card security code, PIN, or full magnetic stripe data.

• Masking the primary account number when it’s displayed, only at most showing the first four and last six digits.

• Using strong digital encryption techniques to protect credit and debit card information kept on file.

• Deleting card on file data once the business need to retain the information is no longer valid.

Many merchant services providers offer PCI-DSS compliance services for an additional fee. While this represents an added cost, such services can be very valuable to businesses that can’t easily manage this need on their own. The costs of these services can pale in comparison to the fines and penalties incurred due to a lack of compliance with card on file rules.

What are the Pros and Cons of Keeping Credit Cards on File as a Merchant?

Pros of Card on File Payments

• Convenience for everyone. Businesses know they have the payment information needed for recurring billing or frequent purchases. Customers have a smoother buying experience.

• Effective security tools and protocols are available. Many businesses successfully maintain secure control over sensitive payment information.

• Encourages sales. Making the buying process as easy as possible removes the obstacles that can lead to customers leaving items or services in their carts.

Cons of Card on File Payments

• Increased compliance needs. Storing customer card details requires additional action on the part of merchants. Credit card on file data needs to be strongly protected to prevent it from being exposed or used maliciously.

• Increased costs for compliance. Merchants need to invest in protecting this data. That can mean paying a merchant service provider to do so or implementing the necessary security tools and technology in-house.

• Card data expires. Credit card numbers and other details will change once the card expires. However, merchants can send out reminders to customers and make it easy to update this information on their websites.

Your Business Deserves an Optimized Payment Strategy

Swipesum takes all of your company’s needs into account when we develop your optimized and unique payment strategy. That includes whether your business keeps customer card data on file among so many other considerations. The result is a payment workflow with increased efficiency and reduced costs.

We’ll carefully review potential partners and tools, suggest the ones that best suit your needs, and negotiate with them to keep your costs manageable. And we do it all with no additional costs for your business.

Ready to streamline your approach to payments? Book a Consultation today!