What is Card-on-File-Tokenization?

For online businesses, keeping customers’ card details safe while enabling quick repeat payments is crucial. This is where tokenization comes in; it replaces sensitive card information with a unique digital token that can be stored and used securely for transactions.

Card-on-File Tokenization (CoFT) takes this a step further, allowing you to save customers’ cards safely and let them pay faster, all without ever handling the actual card details.

PhonePe Payment Gateway offers this through its saved cards feature, which lets end users securely save their debit or credit cards on Hosted Checkout and reuse them for any repeat transaction with that merchant all powered by the CoFT flow.

When a shopper saves their card on your website or app, the actual card number is replaced by a secure, unique token generated by the card network (Visa, Mastercard, RuPay, etc.). This token is what your business or payment gateway stores, not the real card information.

So, during checkout, your system simply sends this token for authorization instead of the card number. The network then maps it back to the original card in the backend, completing the payment securely.

Why is Card-on-File Tokenization Important?

CoFT is essential because it keeps customer payment data secure, ensures regulatory compliance, and helps deliver a faster checkout experience all of which directly impact conversion rates and customer trust. Additionally here’s why it matters:

1. Protects sensitive customer data

CoFT replaces actual card numbers with tokens, so even if your system is compromised, hackers can’t use the data to make real transactions. It’s one of the most effective ways to prevent fraud and data breaches.

2. Complies with RBI regulations

The RBI mandates tokenization for storing card details in India. By adopting CoFT, your business automatically aligns with these rules and avoids penalties or disruptions to online payments.

3. Improves customer trust and retention

When shoppers know their card data is securely handled, they’re more likely to save cards and return for repeat purchases increasing loyalty and lifetime value.

4. Speeds up checkout and boosts conversions

Saved (tokenized) cards reduce friction during payment. That means fewer drop-offs and more completed transactions.

5. Simplifies compliance and reduces liability

Since you’re not storing raw card data, your PCI DSS burden is reduced saving time, cost, and risk.

6. Works seamlessly across devices and gateways

Tokens are interoperable across different platforms, making it easier for businesses to scale and manage payments securely across apps, websites, and gateways like PhonePe Payment Gateway.

What are Key Features of Card-on-File Tokenization?

1. Save & Reuse Cards

Customers can securely save their cards via RBI’s CoFT framework and reuse them for future payments, improving convenience and checkout speed. Here’s what the payment flow looks like:

• Enter card details
• Check a consent box
• Authenticate via OTP
• Complete the transaction and the card is securely tokenized for next time

2. Merchant-Specific Tokenization

Each card is saved against the specific merchant, ensuring tokens cannot be misused across different merchants.

3. Cross-Device Accessibility

Saved cards are accessible across multiple devices as long as the user is logged in with the same account, offering seamless repeat payments.

4. Login-Based Access

Accessing saved cards typically requires the customer to be authenticated ensuring that only the rightful user can view or use their stored payment details. This login-based access is an important part of maintaining security and compliance.

In the case of PhonePe Payment Gateway, users must be logged in to Hosted Checkout to access their saved cards. The login session is shared across merchants within the same browser, unless the user logs out or has been inactive for over a year.

5. Smart token management

In the case of PhonePe Payment Gateway, its PSP app PhonePe acts as the token requestor. This means:

• Cards are saved only with the user’s explicit consent
• Tokens are generated only after a successful transaction

How Does Card-on-File Tokenization Work?

1. Customer chooses “save card” (front-end / UX)

When a shopper enters card details at checkout they are offered the option to save the card for future payments (checkbox or toggle). This UI must explain what “saved card” means and request explicit consent to store the card as a token.

2. Token requestor: who asks for the token

The merchant, or (more commonly) the merchant’s payment gateway / PSP acts as the token requestor. The merchant sends a tokenization request (containing the PAN and required metadata) to the token service either the card network (Visa/Mastercard etc network token service) or the issuer depending on the token model being used.

 3. Customer verification & consent (security step)

Before a token is issued, the issuing bank confirms the cardholder’s consent and identity typically via an OTP or bank app approval flow. RBI rules require clear customer consent for tokenisation in India. The customer does not pay to tokenize. 

4. Token issuance (what the network/issuer returns)

The card network or issuer returns a token, a random, non-meaningful identifier that represents the card + token requestor + (optionally) device or merchant. Network tokens are often 16 digits and include cryptographic controls so they can be used across the payment flow. The token maps to the real PAN only inside the token vault at the network/issuer.

5. Merchant/Gateway stores the token (Not the PAN)

Your system stores the token (plus metadata: token ID, last-4, expiry, token type, token issuer, token lifecycle status), not the PAN/CVV. If you use a gateway/PSP, they usually store the token and return a token-reference you keep in your customer profile. This reduces PCI scope. 

6. Using the token for payments (repeat checkout / recurring)

When the customer checks out again, your backend sends the token (instead of PAN) to the PSP/acquirer. The token travels through the same rails: PSP – card network (which maps token – PAN in its secure vault) – issuer for authorization. The issuer authorizes/declines and the response flows back to your app. The merchant never touches the PAN.

7. Cryptograms & dynamic controls

Modern network tokens often use transaction cryptograms (per-transaction codes) and dynamic controls: token use can be restricted by merchant, device, or channel, and can be revoked or reissued automatically if the card is re-issued. This reduces fraud and improves success rates.

8. Token lifecycle & maintenance (practical ops)

Tokens have lifecycle events you must handle:

• Activation: after successful token issuance.
• Use: payments and recurring charges.
• Update / Re-tokenization: when card is re-issued or expiry changes (networks can automatically refresh tokens).
• Revocation: on user request, chargeback, or suspicious activity.
  Your integration must surface token status in merchant admin and let users remove saved cards (which triggers token revocation).

9. Fallbacks & failure handling

If a tokenized payment fails (expired token, issuer decline, token mismatch), you must:

• Prompt customer to re-enter/update card (capture fresh PAN & re-tokenize).
• Offer alternate payment methods or attempt network token refresh.
  Show clear messaging so the customer understands why re-auth is needed. 

10. Compliance & reporting 

In India, RBI’s tokenisation guidance forbids merchants and payment aggregators from storing actual card credentials; tokens are preferred and customer consent is mandatory. Keep audit trails of token requests, issuance timestamps, and consent records for compliance.

Looking Ahead

The future of online payments is tokenized, seamless, and customer-centric. CoFT empowers businesses to innovate payment experiences, explore new revenue streams, and scale across markets. With Saved Cards by  PhonePe Payment Gateway, you can build on this momentum today by enabling quicker adoption, efficient transactions, and a payment infrastructure ready for the next phase of digital commerce.