How to Bill Customer Credit Cards Remotely (2022)

Long gone are the days of customers needing to enter their chip and pin details to complete an in-store transaction. There are a variety of payment methods available, from tap-to-pay transactions to mobile payments. 

Card on file is one payment method that allows retailers to charge a customer’s card. Unlike most other transactions, the shopper doesn’t have to be present in the store. So long as you’ve got explicit permission from the customer to do so, you can automatically deduct money from their bank account in exchange for goods or services. 

Before you initiate a card on file transaction, you need to get your ducks in a row. This guide shares how your store can process remote transactions, and the types of payments best suited to them.

What is a card on file transaction?

A card on file transaction (COF) is a type of contactless payment that happens when a person has given a retailer permission to store their credit card details and charge it for future payments. 

Benefits of card on file payments

Some of the benefits of card on file payments include: faster checkout, saving employees time, and improving cash flow. Let’s take a closer look at each.

Streamline checkout

The checkout process makes or breaks customer experiences in your store. Shoppers want fast, friction-free payment experiences that don’t inflate the 37 hours we spend waiting in line each year. 

Lukee Li, co-founder of Neutypechic, adds that COF transactions are “a more secure way to process payments, as the customer’s credit card information is saved and doesn’t need to be entered each time they make a purchase. This can also help to speed up the checkout process, as customers don’t have to enter their information every time.

“We’ve found that card on file installment transactions are the most popular among our customers, because they offer a more convenient and secure checkout experience.”

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Save employee time

In retail, time is money. The quicker you can process new orders, the more time you’re left with to do more important tasks—be that marketing your store, re-engage existing customers, or refreshing your retail signage to attract new shoppers.

Card on file transactions save time, since you can process them in a matter of seconds. Case in point: if you’re billing customers for a payment installment who aren’t physically present in the store, your retail team can automatically bill the card on file instead of phoning the customer each time. 

​​Improve cash flow

Cash flow is a struggle for many entrepreneurs. According to QuickBooks, just under a third of business owners couldn’t pay their bills because of poor cash flow management. 

When processing a card on file transaction, customers need to know that their card will be billed in advance. This helps retailers improve cash flow. You’ll have an agreement with a customer that says you’ll charge X dollars every week, month, or quarter. That kind of predictability helps you plan for other expenses associated with running a business.

Challenges of card on file transactions

There are also a few challenges associated with card on file transactions, including: heightened risk of fraud, increased regulations, and the potential for faulty charges.

Risk of fraud

When a customer grants permission for a retailer to store and bill their credit card, they often become a target for scammers. Fraudsters can hack their online account and place orders using the stored card, billing genuine shoppers for items they’ll never receive. 

It’s called third-party account takeover and was responsible for causing the most financial losses to 13% of retailers in 2021. 

Failing to meet regulations

All businesses that collect, store, and process credit card information are required to meet Payment Card Industry Data Security Standard (PCI DSS). It’s a set of rules that make sure your customer’s’ data stays secure, such as:

• Using firewalls
• Installing password protection software
• Regularly updating antivirus software
• Restricting physical access to credit card data
• Encrypting cardholder data

Failing to meet these standards doesn’t just put you in hot water with customers. Hackers can intercept card-not-present transactions—including those you’re storing and charging remotely. It’s a type of data attack that contributes to a $61.7 billion annual problem for retailers. 

Faulty charges

Transactions that go through without a hitch benefit everyone involved. Your customer doesn’t have to waste their own time reentering card details, and your retail store gets money in the bank. 

However, card on file transactions can sometimes result in faulty charges. That might be because:

• You’ve billed the wrong amount 
• A customer doesn’t recognize the transaction and requests a chargeback
• The customer’s profile details—such as their credit card number or expiry date—are incorrect

Your firm may be unable to charge a stored card on file and get the required cash for products and services used if a customer’s card has expired. It might seem like a little inconvenience, but when this happens to a large number of consumers’ cards, it quickly becomes a problem.

How do card on file transactions work?

Either a retailer or customer can initiate a card on file transaction. Let’s take a look at the different processes for each. 

1. Consumer-initiated transactions (CIT). This type of COF transaction happens when a shopper is present during the contactless transaction. Shoppers authorize future charges by sharing credit card information through a secure platform, such as a point-of-sale (POS) system. They use their CVV code, pin number, or signature to authenticate any future card on file transactions.
2. Merchant-initiated transactions (MIT). Retailers can bill a customer’s card if they’ve already gone through a CIT. In this case, the customer isn’t present for the transaction, but they’ve already given a retailer permission to bill their card according to a pre-agreed schedule.

When a customer is ready to check out, you will need to have them provide their name, email address, and phone number. You can then use a card on file system like Shopify’s or Stripe’s to securely store this information. Businesses can receive customers’ consent to the COF terms by asking customers to fill out an online form, enter their card at a POS terminal, and sign a receipt.

Types of card on file payments

• Recurring payments and subscriptions
• Installments
• Resubmission
• Reauthorization

Let’s examine each of these types of payments individually.

Recurring payments and subscriptions

A subscription is a type of recurring payment that happens on a strict schedule. They pose many advantages to retailers—notably consistent, predictable revenue and high customer engagement. 

If you’re selling handmade candles in your store, for example, you could offer a monthly membership where customers get five candles per month. On the last day of the month, you can initiate a card on file transaction that bills them for the following month’s bundle. 

Installments

Buy now, pay later transactions have skyrocketed in recent years. Instead of paying one lump sum upfront, customers can pay later (either the full amount or regular installments). 

Make products more accessible to your customers by allowing them to pay in installments. With Shopify POS apps like Split, you can take partial payment in-store. Any future charges will automatically bill a customers’ stored credit card on each agreed payment date. There’s no need to rely on shoppers to visit the store and keep up with payments.

Resubmission

A resubmission is a type of transaction that happens after a customer’s payment automatically fails. Usually as a result of the customer having insufficient funds in their account, retailers who see this notification can do a resubmission as another attempt to take payment. 

Reauthorization

Retailers can run a reauthorization before giving goods to customers to check that their card is working. If a customer has split their payments to pay half in-store and half in two weeks’ time, reauthorize their card on file before billing the final amount. 

How to implement card on file transactions

• Payment policies
• Secure customer data
• Leverage technology
• Give notice of upcoming payments

Let’s walkthrough each of these steps to set your business up to accept card on file payments.

Payment policies

A payment policy protects both your store and your customers if either party doesn’t hold up their side of the card on file transaction. 

Let’s put that into practice and say you’re unable to charge the credit card you’ve stored for a subscription because the customer’s bank is showing an “insufficient funds” message. Your payment policy says that if one payment attempt fails, you’ll try again using a resubmission in two days’ time. If it still fails, they won’t receive their products. 

Setting those boundaries in advance (via your payment policy) removes any awkward conversations you’d otherwise need to have with your customer.

Secure customer data

The security of your customer’s data is paramount when processing any transaction. Card on file payments are no different. 

Use a payment processor that tokenizes customer data. Payment tokenization turns numbers—such as credit card details—into illegible tokens. Nobody can eavesdrop on the transaction and pick up sensitive payment information. The original payment credentials are visible to only the retailer, payment processor, and ACH network. 

Leverage technology

Technology exists to make your retail business run smoothly. Take advantage of retail tech to process card on file transactions and keep customer data safe.

Your point-of-sale system is one of the most important parts of your store. Choose one that can handle partial payments, store customer credit card details, and automatically bill shoppers based on an already-agreed upon subscription contract. 

Retailers can also use a third-party payment processor like Shopify Payments. It’s PCI compliant to keep payment and business data safe, and supports 3D secure checkouts that protect your business from chargebacks by shifting liability from your business to the card issuer.

Best Price Nutrition uses the Recharge app to handle card on file subscription payments. Its ecommerce manager, John Frigo, says, “The nice thing about Recharge is we aren’t in charge of storing and securing the cards on file or processing the transactions, but it allows us to lock in recurring purchases from our customers. 

“We’re in an industry where this works out well, because when it comes to vitamins and supplements, they tend to be something people purchase month after month for years or even their entire lives.”

Give notice of upcoming payments 

Shoppers are protected by their credit card company if they don’t recognize a transaction on their statement. That often leads to requesting a chargeback. You could end up refunding the total amount on top of processing fees.

Prevent that from happening by reminding customers of each upcoming transaction. Granted, you’re giving them an extra opportunity to cancel their subscription and lose your revenue. But chargebacks and negative social media posts pose a real threat if customers feel like you’re taking advantage of having their credit card on file.

Start accepting card on file transactions at your business

Card on file transactions are a great way for retailers to earn consistent, predictable revenue. Whether you’re offering a subscription service or allowing customers to pay in installments, make sure you’ve got explicit permission to charge credit cards and store customer data securely.