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Guide to Card on File Transactions

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedFeb 20232 min read

Have you ever ordered a meal in a hotel and charged it to your room after checking in? This is what’s known as a card on file transaction, using stored card details to authorise a purchase. The Covid-19 pandemic has increased the demand for contactless payments, opening new doors for card on file transactions. In this guide, we’ll take a closer look at card on file transactions, including their definition, uses, and challenges to overcome.

What is a card on file transaction?

When cardholders provide their payment credentials to a merchant, either online or in person, they can authorise the merchant to store it for future purchases. When these stored cardholder details are used, this is called a card on file transaction. This is frequently used for recurring payments, such as a gym membership, magazine subscription, or other monthly purchase. Rather than manually entering in the card details each month, the customer enjoys the convenience of automatic billing.

Card on file transactions are not only used for recurring payments. This term refers to any transaction completed with stored card details, including one-time payments or upgrades to existing services.

How do card on file transactions work?

To initiate a card on file transaction, the merchant must collect card details and authorisation from the customer. This is often through an ecommerce checkout page or other online form. Card on file transactions can also be approved at the point of sale or over the phone. There’s a wide variety of different transactions that use card on file payments.

Instalment plans use stored card details to make scheduled payments according to a contract.
Incremental payments add on services or products throughout the space of a contract.
Delayed transactions take payment after the product or service has already been provided.
Recurring payments are taken at fixed or flexible intervals to pay for memberships and subscriptions.

What are the benefits of card on file transactions?

There are benefits to both customers and business. The primary benefit for both parties is convenience. Customers only need to provide their payment details once, eliminating the need to re-enter card information, sign documents, or enter a PIN with each new transaction.

For businesses, card-on-file transactions boost efficiency and cash flow. You can use stored card details to set up recurring payments, eliminating any uncertainty about payment timings. It offers a way to reduce late payments and manual paperwork. With a steadier stream of revenue, businesses can create more accurate cash flow forecasts.

Offering a seamless, touch-free payment experience also improves customer relationships. Businesses can send out personalised invoices and take payments with no physical presence necessary.

What are the challenges of card on file transactions?

Cybersecurity is the greatest challenge to overcome when you start taking card on file transactions. It’s vital to follow all the latest protocols and be fully PCI DSS compliant when storing customer card details. This includes notifying cardholders of changes to your terms of use, disclosing how payment credentials are stored, and encrypting all data. There’s a risk of a data breach, which not only is costly in financial terms but also damaging to a business’s reputation.

Aside from this criminal risk, the other major challenge is involuntary churn. When customer cards expire or details change, the payment fails. Businesses must use a system to track and update customer account details as needed.

Alternatives to card on file transactions

Direct debit allows businesses to reap all the rewards of card on file transactions while minimising many of the risks mentioned above. For example, GoCardless lets you take both recurring and one-off payments from customer bank accounts, with no credit card details required. It’s easy to get started using your choice of hosted checkout flows and a custom API. Our Success+ automatic retries feature also tackles the challenge of payment failure. It recovers up to 70% of failed payments safely and automatically. GoCardless also integrates with over 300 partners, including invoicing software like Xero and QuickBooks for streamlined financial reporting.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.