{"id":10533,"date":"2024-01-29T06:21:35","date_gmt":"2024-01-29T11:21:35","guid":{"rendered":"https:\/\/faisalkhan.com\/?page_id=10533"},"modified":"2024-01-29T06:21:40","modified_gmt":"2024-01-29T11:21:40","slug":"closed-loop","status":"publish","type":"page","link":"https:\/\/faisalkhan.com\/learn\/payments-wiki\/closed-loop\/","title":{"rendered":"Closed-Loop"},"content":{"rendered":"\n<h3 class=\"wp-block-heading\">Definition<\/h3>\n\n\n\n<p><strong>Closed-loop<\/strong> refers to a payment system where cards or payment methods are restricted to transactions with a specific retailer or within a specific network. Unlike open-loop systems that are widely accepted across different merchants, closed-loop systems are limited to the issuer&#8217;s ecosystem. Examples include store-specific gift cards or loyalty cards.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Usage Context<\/h3>\n\n\n\n<p>Closed-loop systems are commonly used in:<\/p>\n\n\n\n<ul>\n<li><strong>Retail Gift Cards:<\/strong> Specific to one retailer or a group of related retailers.<\/li>\n\n\n\n<li><strong>Loyalty and Reward Programs:<\/strong> Where points or credits are earned and redeemed within the same brand or network.<\/li>\n\n\n\n<li><strong>Transportation Systems:<\/strong> Certain public transport cards that are only valid within a specific city or transport network.<\/li>\n\n\n\n<li><strong>Corporate Expense Management:<\/strong> Where businesses issue cards to employees for company-specific expenses.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Importance<\/h3>\n\n\n\n<p>Closed-loop systems are important because they:<\/p>\n\n\n\n<ul>\n<li><strong>Promote Brand Loyalty:<\/strong> Encourage repeat business within a particular brand or network.<\/li>\n\n\n\n<li><strong>Offer Customized Rewards:<\/strong> Tailor rewards and incentives specific to consumer behaviors.<\/li>\n\n\n\n<li><strong>Enhance Data Collection:<\/strong> Facilitate targeted marketing strategies through tracking of consumer spending patterns within the network.<\/li>\n\n\n\n<li><strong>Reduce Processing Costs:<\/strong> Typically incur lower transaction fees compared to open-loop systems.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Users<\/h3>\n\n\n\n<p>Typical users or beneficiaries of closed-loop systems include:<\/p>\n\n\n\n<ul>\n<li><strong>Individual Consumers:<\/strong> Using gift cards or participating in loyalty programs.<\/li>\n\n\n\n<li><strong>Retailers and Businesses:<\/strong> Implementing these systems to encourage repeat patronage.<\/li>\n\n\n\n<li><strong>Service Providers:<\/strong> Like public transportation authorities using closed-loop cards for fare payments.<\/li>\n\n\n\n<li><strong>Corporate Entities:<\/strong> Using closed-loop cards for managing expenses.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Application<\/h3>\n\n\n\n<p>Closed-loop systems are applied through:<\/p>\n\n\n\n<ol>\n<li><strong>Issuance:<\/strong> Retailers or service providers issue cards or digital credits.<\/li>\n\n\n\n<li><strong>Usage:<\/strong> Consumers use these cards or credits exclusively within the issuer\u2019s network.<\/li>\n\n\n\n<li><strong>Management:<\/strong> The issuer controls and manages the redemption and balance of the cards or credits.<\/li>\n<\/ol>\n\n\n\n<h3 class=\"wp-block-heading\">Pros and Cons<\/h3>\n\n\n\n<p><strong>Advantages:<\/strong><\/p>\n\n\n\n<ul>\n<li><strong>Targeted Customer Engagement:<\/strong> Can be used to build customer loyalty and repeat business.<\/li>\n\n\n\n<li><strong>Lower Transaction Costs:<\/strong> Generally, less expensive for the issuer to process.<\/li>\n\n\n\n<li><strong>Controlled Spending:<\/strong> Limits where funds can be spent, useful in corporate settings.<\/li>\n<\/ul>\n\n\n\n<p><strong>Disadvantages:<\/strong><\/p>\n\n\n\n<ul>\n<li><strong>Limited Use:<\/strong> Can only be used with specific retailers or services.<\/li>\n\n\n\n<li><strong>Potential for Unused Funds:<\/strong> Gift cards may go partially or entirely unredeemed.<\/li>\n\n\n\n<li><strong>Lack of Universality:<\/strong> Not as flexible as open-loop systems for the end-user.<\/li>\n<\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Real-World Examples<\/h3>\n\n\n\n<ol>\n<li><strong>Starbucks Rewards Cards:<\/strong> These are used exclusively at Starbucks outlets for purchases and earning rewards.<\/li>\n\n\n\n<li><strong>Transport Cards like the Oyster Card in London:<\/strong> Used solely within the London transport network.<\/li>\n\n\n\n<li><strong>Corporate Prepaid Cards:<\/strong> Issued by companies for employees to incur business-specific expenses.<\/li>\n<\/ol>\n\n\n\n<h3 class=\"wp-block-heading\">Analogies<\/h3>\n\n\n\n<ul>\n<li><strong>Closed-loop is like a ticket for a specific event:<\/strong> Much like a concert ticket is valid only for one specific event, a closed-loop card is only valid within a specific retailer&#8217;s network, unlike an open-loop system which is more like a pass that grants access to multiple events or venues.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Definition Closed-loop refers to a payment system where cards or payment methods are restricted to transactions with a specific retailer or within a specific network. Unlike open-loop systems that are widely accepted across different merchants, closed-loop systems are limited to the issuer&#8217;s ecosystem. Examples include store-specific gift cards or loyalty cards. Usage Context Closed-loop systems [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":3611,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_uag_custom_page_level_css":"","_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"blocksy_meta":[],"featured_image_urls":{"full":"","thumbnail":"","medium":"","medium_large":"","large":"","1536x1536":"","2048x2048":"","gb-block-post-grid-landscape":"","gb-block-post-grid-square":"","yarpp-thumbnail":""},"post_excerpt_stackable":"<p>Definition Closed-loop refers to a payment system where cards or payment methods are restricted to transactions with a specific retailer or within a specific network. Unlike open-loop systems that are widely accepted across different merchants, closed-loop systems are limited to the issuer&#8217;s ecosystem. Examples include store-specific gift cards or loyalty cards. Usage Context Closed-loop systems are commonly used in: Retail Gift Cards: Specific to one retailer or a group of related retailers. Loyalty and Reward Programs: Where points or credits are earned and redeemed within the same brand or network. Transportation Systems: Certain public transport cards that are only valid&hellip;<\/p>\n","category_list":"","author_info":{"name":"Faisal Khan","url":"https:\/\/faisalkhan.com\/author\/nomismad\/"},"comments_num":"0 comments","featured_image_urls_v2":{"full":"","thumbnail":"","medium":"","medium_large":"","large":"","1536x1536":"","2048x2048":"","gb-block-post-grid-landscape":"","gb-block-post-grid-square":"","yarpp-thumbnail":""},"post_excerpt_stackable_v2":"<p>Definition Closed-loop refers to a payment system where cards or payment methods are restricted to transactions with a specific retailer or within a specific network. Unlike open-loop systems that are widely accepted across different merchants, closed-loop systems are limited to the issuer&#8217;s ecosystem. Examples include store-specific gift cards or loyalty cards. Usage Context Closed-loop systems are commonly used in: Retail Gift Cards: Specific to one retailer or a group of related retailers. Loyalty and Reward Programs: Where points or credits are earned and redeemed within the same brand or network. Transportation Systems: Certain public transport cards that are only valid&hellip;<\/p>\n","category_list_v2":"","author_info_v2":{"name":"Faisal Khan","url":"https:\/\/faisalkhan.com\/author\/nomismad\/"},"comments_num_v2":"0 comments","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v22.6 (Yoast SEO v22.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Closed-Loop - Faisal Khan<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/faisalkhan.com\/learn\/payments-wiki\/closed-loop\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Closed-Loop\" \/>\n<meta property=\"og:description\" content=\"Definition Closed-loop refers to a payment system where cards or payment methods are restricted to transactions with a specific retailer or within a specific network. 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