Closed-loop payment cards: What they are and why use them

Closed-loop payment cards: Definition

Closed Loop” is an anglicism widely used in development to refer to a system literally designed as a “closed circuit or closed loop”. Often designed to be self-sufficient, closed circuits are processes which, by definition, aim to reduce external intervention.

What are closed-loop payment cards?
In the field of payment cards, and in particular prepaid cards, the “closed loop” indication defines a restricted field of use. Unlike an “open loop” payment card, which can be used on an open, multi-brand network (as is the case for most bank cards), a “closed loop” card will be limited. For example, it can only be used in a particular store, or only within a group of stores.

Closed-loop payment systems are based on payment programmes generally designed by Programme Managers or banks for specific uses. In particular, it’s a popular format for cultural and sporting events. At a festival, for example, festival-goers can be given contactless payment wristbands that can only be used within the festival grounds. As well as virtualising admission tickets, users will be able to pay for drinks, food, goodies and entertainment at the festival. They will, for example, be able to recharge their wristbands via a mobile app, and no longer carry cash or their own credit cards throughout the event. This is a clear advantage not only for the end user, who benefits from a unique, fluid and simplified consumer experience, but also for organisers, who benefit from a dematerialised currency that avoids fraud and errors. But beyond events, a closed-loop payment card is particularly useful for loyalty programmes or gift cards. A retailer can offer its customers a payment card that can only be used in its own stores and those of its partners. The card cannot be used in other stores. Added to this are benefits such as loyalty point discounts, cashback on the card or targeted promotional offers… a whole range of marketing actions with strong growth potential. Of course, the closed loop format applies to physical and virtual payment cards, as well as to any medium based on a personalised payment programme. The most important thing is to define with your Programme Manager, in advance of your project, the contours of your payment programme and the desired limits of use.