Open-loop payments run on shared networks (e.g. Visa, Mastercard) and connect banks and businesses that have no direct relationship. Closed-loop payments work in the opposite way: one issuer controls the network. This might look like a transit card that works only on the subway or a gift card that redeems at only one retailer. The difference comes down to who owns the acceptance network and how many parties are involved in moving money from one account to another.

Below, we’ll explain how closed-loop and open-loop payments work, how they compare, and when it makes sense to use each.

Key takeaways

• Open-loop payments run on shared card networks and bank payment networks. They’re broadly accepted and not specific to one bank or business.

• Closed-loop payments stay within one issuer’s network. These trade broad acceptance for full control over loyalty programs.

• Many businesses use both systems: they accept open-loop cards at checkout and run closed-loop gift card or loyalty programs.

What are open-loop payments?

Open-loop payments run on shared networks that connect banks and businesses with no direct relationship. These transactions typically involve a cardholder, an issuing bank, an acquiring bank that processes the transaction for the business, a card network that routes the message between them, and often a payment provider that connects the pieces. In 2024, global brand card networks (e.g. Visa, Mastercard) processed 776 billion transactions; annual volume is projected to exceed 1 trillion by 2029.

What are closed-loop payments?

Closed-loop payments work within a single network controlled by one issuer; no outside banks or card networks are involved. A Starbucks app balance, a Target gift card, and a university ID card that pays for laundry and dining hall meals are all examples. The business that issued the card owns the acceptance network.

What’s the difference between closed-loop and open-loop payments?

The main difference between closed-loop and open-loop payments is where they’re accepted. Open-loop cards work anywhere the network is accepted, while closed-loop cards work only within the issuing business’s network.

Here are other ways they differ:

Mechanics

Open-loop payments rely on multiple banks and processors that connect through shared payment networks, while closed-loop payments depend on one issuer with no outside banks involved. These mechanical differences affect fee structures and data visibility: open-loop transactions carry interchange fees and network fees, while closed-loop transactions don’t.

Control

The business that offers the closed-loop payment has more control over the payment system. It can set rules for redemption and refunds, although gift card expiration is often legally restricted. Open-loop payments must abide by network rules that govern disputes, chargebacks, and eligibility.

Data visibility

On an open-loop transaction, the business gets the sale but not much data. The issuing bank knows the cardholder and the network knows the transaction happened, while the business sees an authorisation and settlement. On a closed-loop transaction, the issuing business owns the full record, which is part of why gift card and loyalty programs appeal to retailers—they get direct insight into spending patterns.

When should you use open-loop vs. closed-loop payments?

The right model depends on whether reach or control matters more for your business. If you’re selling to customers who expect to pay however they want, open-loop acceptance is the baseline. A payment provider such as Stripe can help a business accept Visa, Mastercard, and other network cards alongside bank transfers and digital wallets without requiring the business to build direct relationships with every issuing bank involved.

Closed-loop payments fit when a business wants tight ownership over a specific use case rather than universal acceptance. They give the business full data visibility and control over its rules, but it must build and maintain that infrastructure by itself.

Businesses might build these closed-loop systems:

• Gift cards: A program that needs to work only in the business’s stores or on its website, with no outside network involved

• Loyalty balances: Rewards that stay tied to the business’s rules for earning, redemption, and expiration

• Platform-specific credit: Store credit or refund balances that should be usable only within that platform

Many businesses use both. A retailer might accept Visa and Mastercard at checkout while issuing gift cards and loyalty balances through a separate closed-loop system. The two don’t compete: the open-loop system handles the transaction with the outside world, and the closed-loop one handles the relationship the business wants to own.

Where can closed-loop cards be used?

Closed-loop cards work only within the specific network that issued them. This makes their use cases narrower but often deeply woven into daily routines.

Common examples include:

• Transit systems: One Metro New York (OMNY) in New York City, Transport for London (TfL) in London, and similar city-specific payment systems work only within that city’s transit network and typically can’t be used for anything outside it.

• Retail gift cards: A card from a specific retailer can be redeemed only in that retailer’s stores or on its website.

• Prepaid dining and campus cards: University ID cards often double as closed-loop payment accounts that work at campus dining halls, bookstores, and vending machines.

• App-based store balances: Loading money into a coffee chain’s app (e.g. the Starbucks app) gives you a balance that works only at that chain’s locations and through its app or in-store terminal.

• Employer or incentive programs: Some businesses issue closed-loop balances for internal use, such as cafeteria credit and wellness program rewards redeemable only through the sponsoring business’s system.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business – from scaling startups to global enterprises – accept payments online, in person and around the world.

Stripe Payments can help you:

• Optimise your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment user interfaces (UIs), access to 125+ payment methods, and Link, a digital wallet built by Stripe.

• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.

• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalise interactions, reward loyalty and grow revenue.

• Improve payment performance: Increase revenue with a range of customisable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorisation rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments or get started today.