Have you ever heard or read about open loop or closed loop gift cards? Every gift card fits into one of those categories, even if you’ve never heard of either of those types of cards. Now let us explore what each of these means.

Open Loop Gift Cards: What Are They?

Open-loop gift cards can be defined as gift cards that are widely accepted. They function similarly to credit cards in that they may be used everywhere merchants accept them. Typically, store names are shown next to Mastercard or Visa logos. Examples of open loop gift cards are: American Express, Visa, Verve, and Mastercard to name a few.

Advantages of Open-loop Gift Cards

  1. They are widely available
  2. Recipients can use them at restaurants, clothing stores, grocery stores and more.
  3. They can even be used to pay non-recurring bills.
  4. Open loop cards are almost as flexible as cash.

Cons of Open-loop Gift Cards

  1. Activation costs depending on the processor
  2. Occasionally, dormancy fees must be paid by the customers depending on the processor (Visa or Mastercard).

Closed Loop Gift Cards: What Are They?

Gift cards with a closed loop are those that are issued by a business or store and are only valid there. Closed-loop gift cards are a common marketing tactic used by many companies to attract loyal consumers. Gift cards from Amazon, Netflix, Starbucks, and other retailers are examples of closed-loop gift cards.

Though redeemable at a variety of merchants, these “related” gift cards are still closed loop because they can only be processed (activated, redeemed, supported) via the parent company’s gift card program.

Another type is closed-loop gift cards, they can be redeemed at a brand’s sister or affiliate businesses. The Footlocker gift card is one illustration of this. Not only may a Footlocker gift card be used at Footlocker, but also at Champ Sports and Eastbay.

Advantages of Closed-loop gift cards

1. There are no charges for activation.

2. They make ideal presents for folks who adore going to a certain business.

3. They increase customer loyalty.

Disadvantages of Closed-Loop Gift Cards

If you do not want merchandise from the issuing retailer or redeeming the gift card presents a challenge (e.g. no nearby locations), then you will have to find alternative ways to use the unwanted gift card. Because the gift card can only be redeemed at the issuing merchant, you will either have to use the gift card there or do something entirely different with the card, such as sell it for cash on a reliable platform.

Wrapping Up

It all depends on your preferences and demands, or the needs of the recipient. Both types of gift cards are excellent. What distinguishes an open loop gift card from those with a closed loop? From the standpoint of the customer, the straightforward response to this inquiry is that open loop gift cards, such as Visa gift cards, are widely used. Gift cards with a closed loop system, like those from Starbucks, can only be used at the company’s store.

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