Open loop payment cards are prepaid cards carrying the MasterCard, American Express, Discover, or Visa logo. These cards may be used like cash wherever credit cards are accepted.
Closed loop payment cards are those limited to a specific vendor and can only be spent at the merchant listed on the card. Starbucks and Amazon gift cards, for example, are “closed” because they are only accepted at those specific merchants.
At first glance, it appears that open loop cards are the best solution as they offer the widest range of purchasing options. But before you make that decision, consider these attributes:
- Often impose a per card fee above the face value – can be as much as $5.95 per card. On smaller denominated ($25 or $50) this can amount to 10% to 12% additional cost.
- Often expire and/or decline in value after 6 or 12 months if full balance is not used;
- Often impose fees when the card is swiped, when you check your balance via customer service, and other situations included in the “fine print” on the card;
- Often result in a decline at the merchant location if cardholder does not know the exact balance and the merchant cannot tell the cardholder how much remains on the card;
- Can be confusing at checkout if the cardholder wants to use an additional method of payment for any outstanding balance on his/her purchase (i.e. a “split tender” transaction).
- In addition, older credit card processing terminals still handle gift cards as though they are credit cards – putting holds (or pre-authorization amounts) on the gift cards when they are first swiped. If the bank card does not have a balance to accommodate a pre-authorization swipe plus the final sale, a gift card might be declined.
- Closed loop merchant cards, while restricting the cardholder to a specific merchant, have no declining values and rarely impose expiration dates. In addition, the merchant can “read” the card and tell the cardholder the exact balance that remains.
The user experience is usually much smoother with closed loop cards than with open loop.
How about a solution that offers the best of both worlds? Award of Choice gives each recipient the open loop flexibility of hundreds of merchants with the ease of closed loop gift card use. One Award of Choice opens the door to over 500 closed loop gift card brands including those that are requested most – WalMart, Target, Amazon, Starbucks, Best Buy, Costco, etc. With no fees, no expirations, and no minimums, Award of Choice combines the best of closed loop and open loop cards -- offering hundreds of merchant choices, favorable economics, and a great user experience.
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