What is an 'Open Loop Card'

An open loop card is an electronic payment card that can be used anywhere the processing brand is accepted. Open loop cards are typically issued in partnership with a processing network provider such as Visa or MasterCard. American Express and Discover offer unique open loop card relationships since they can serve as both an issuer and network processor. Open loop cards will include the logo of the network processor involved in the card’s transaction process.

BREAKING DOWN 'Open Loop Card'

Open loop cards can be credit cards, debit cards, gift cards or prepaid cards. The partnerships involved with the issuance of open loop cards can be structured in various ways.

Co-Branded Cards

Retailers utilize co-branded card relationships to issue store credit cards. Co-branded card relationships allow a retailer to partner with a credit card issuing financial institution to offer their customers credit cards that provide for discounts and rewards points.

Through co-branded card relationships retailers have the opportunity to offer both closed loop and open loop cards. A closed loop card is a single purpose card that can only be used at the retail store or in some cases with its affiliates. A co-branded open loop card carries the logo of the retailer and the network processor and can be used anywhere.

Both closed loop and open loop co-branded cards offer customers discounts and points. Closed loop cards are typically easier to qualify for than open-loop cards and will probably have a lower credit limit since the amount of money a customer is likely to spend at a single store is probably less than what they would spend on an open loop card that can be used almost anywhere.

Open Loop Card Variations

As standard electronic payment cards, open loop cards can take a variety of forms. Any electronic payment card that is widely accepted at multiple locations is considered an open loop card.

Debit Cards

The debit card tied to your checking account is an open loop card. This card will be issued to customers by their issuing bank in partnership with the bank’s processing network. Debit cards can be used anywhere that their processing network is accepted.

Credit Cards

Credit cards are open loop cards that can be issued by a wide variety of financial institutions. They also work in partnership with a network processor and include a branded logo.

Gift Cards and Prepaid Cards

Gift cards and prepaid cards are electronic payment cards that can be used anywhere. Gift cards are a type of prepaid card that can usually only be used until the funds have been depleted. Prepaid cards are similar to gift cards offering prepaid funds to be used for purchases. However, these cards are reloadable and can be consistently used for payments and recurring billing.

Some prepaid cards may also be used for public assistance benefits. For example, certain prepaid assistance cards might allow qualifying individuals to purchase food at any grocery store that accepts Visa. Flexible spending account cards are also a type of open loop prepaid card, which can be used to make qualifying health care purchases from any merchant that accepts the branded processor.

There are also open loop payment cards that can be used as payroll cards to pay workers who don’t have bank accounts, can’t receive direct deposits and would have to pay a fee to cash a check. Employers partner with payroll card issuers to provide this card as a benefit for their customers. Some of these cards come with numerous fees, but workers can use them anywhere that the network brand is accepted.

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