Open-loop means any payment method can be used to make payments without having to be part of the system itself. Any card that is widely accepted at multiple merchant stores and locations is considered an open loop card.
Open loop cards can come in a multitude of forms. Open loop cards can be credit cards, debit cards, gift cards, or prepaid cards. The most common example is a credit card processed by a renowned card scheme, like Visa or Mastercard.
The advantages of open loop cards include high scalability and versatile transactions that are universally accepted. Card holders can make purchases anywhere in the world across multiple merchants where card payments are accepted, including online and over the phone.
When we refer to payment cards, open loop and closed loop, are systems that indicate whether a payment card can be used at online or offline stores other than that of the card issuer.
What is the difference between open loop & closed loop payment system?
Closed loop payment systems do not offer as much flexibility as open loop.
While open-loop payment systems enable cardholders to make purchases anywhere, closed-loop cards are issued to be used at particular merchant stores only.
Most store gift or branded cards, such as the The Alshaya Card, can only be used at the issuing stores, limiting purchases to the issuing retailer, and are therefore closed-loop cards.
However, not all store-branded cards are or need to be closed loop, organizations can create all sorts of co-branded payment cards via partnerships with financial institutions or modern card issuing providers like SimpliFi, enabling payment acceptance globally at multiple merchants.