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Closed Loop vs. Open: What Is The Best Gift Card Program For My Business?

Many businesses start thinking about adding a gift card program but don’t know where to start. With the right help, implementing a gift card program doesn’t need to be difficult. There are a few things to decide, one of them being whether you want to offer a closed-loop or open-loop gift card program.

Closed-Loop Gift CardClosed-loop gift cards

Closed-loop gift cards are cards that only work at one store, or with one corporation’s brands. For example, if “Sample Restaurant” offers gift cards that have their name and logo on them, and they can only be redeemed at their restaurant, that is a closed-loop gift card. They will not have the logo of a major payment processor like Visa® or MasterCard® on the card. Only the specific business’ gift card processing program will accept these cards.

Pros
  • Ensures recipients of the gift card return to your business to use it
  • Normally free to activate for the user
  • Gift cards that are purchased but never used become profit for the business (each state has different laws regarding unused gift cards)
  • Allows businesses to make money on the products purchased using the gift card
  • Many shoppers purchase more than what the value of the gift card covers, so business profits increase
Cons
  • Limited flexibility—can only be used at a single business or businesses under one corporation
  • Your business needs to have a gift card processing solution

Open-loop gift cards

Open-loop cards look like a credit card, are not specific to a business, and are accepted nearly everywhere. They process on credit card systems such as Visa® and MasterCard®.

Pros
  • Able to use at any business that can process credit cards
  • Flexibility of usage almost like cash
Cons
  • Normally requires an activation fee for the user or purchaser
  • Old credit card terminals sometimes put "hold" or "pre-authorization" amounts on cards which can be a problem for gift cards, although this is less common as equipment gets upgraded
  • Limited control of where the gift card is used, so you may not gain profit benefits other than the activation fee

Which gift card program should I offer?

Ultimately the gift card program you choose to offer is up to you. Learn more about closed-loop and open-loop gift cards in this blog post.  Closed-loop gift cards are a nice way to promote your business and ensure customers and recipients keep coming back to your business to shop. While open-loop gift cards offer additional flexibility of where they can be spent, they don’t necessarily ensure they are spent with your business. With those things in mind, if you are looking to add a gift card program to your business a closed-loop gift card program will likely provide the biggest promotional and sales benefit to your company.

When you are looking to add a closed-loop gift card program to your business come to CARDSource and we’ll get you started.

Interested in more information about gift cards? Download our free gift card guide;

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Tom Murphy
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