What are Closed Loop Mobile Payments and Why Do You Need it now?

If you ever bought a prepaid phone card or gift card then you might be familiar with the closed-loop wallet solution. In this kind of payment option, you need to purchase a pre-loaded card that is only valid to use in a specific retail shop or the mobile network. This is quite different from the credit card that users use anywhere.

In such a concept, smartphone devices are playing a vital role. Customers could now manage their gift cards or accounts with the help of a mobile device. With a simple figure tapping one could check the balance, payment and top-up.

Closed-loop gift cards work only at one store or a particular brand. One of the major merits of a closed-loop card is the lower processing cost for the merchants. This attracts many big brands to adopt this payment system.

Some reputed companies like Starbucks and Tim Hortons reach out to millions of mobile transactions with the use of closed-loop mobile payment.

Role of closed-loop mobile payment for merchants:

Some of the benefits of closed loop mobile payments are speed, security and control. Besides that, some of the other benefits of this system are as follows.

Better reporting: The care of gift cards may be cumbersome while keeping an eye on the mobile behaviour is easy. It helps in getting a deep insight into customer behaviour.

Higher sales: The money which is added to the e-gift cards or the mobile wallet app. If the customer doesn’t use the remaining balance, you get to keep the extra profit.

Greater outreach: The sending of reminders and promotions is also now easy with the help of mobile technology. Even the geo-targeted notification is triggered when the customer is close to the store.

Increasing customer loyalty: It keeps the customers back with the ability to send offers and customized promotions on mobile devices. With the integration of incentive programs also the customer loyalty hike.

Closed-Loop system v/s Open Loop system:

The open loop system and closed-loop system both are different from each other. Here we will differentiate both terms based on advantage and disadvantage.

Open Loop mobile payment:

With this kind of payment system, a user uses one centralized digital wallet to make the payment at many different locations. The open platform is always connected to the personal account. The best example of this system is a credit card.

Closed-loop mobile payment:

In this system, the user loads the money into the spending account which is linked to the payment device. The best example is a gift card that users like to use.

Let’s focus on the advantage and disadvantage of both:

Open Loop – Advantage:

The open-loop system is easy to manage and allows the customer to pay from anywhere, anytime and for anything with the help of a smartphone.

Open Loop – Disadvantage:

The open-loop system does not carry many advantages from the merchant perspective. They even threaten the loyalty programs and even stop the ancillary benefits of a closed-loop system like control over the customer data. Most of the merchants even do not accept payment via open-loop mobile wallets.

Closed-loop – Advantage:

Closed-loop mobile payments are beneficial for both merchants and consumers. The merchant could capture the big data on the customer transactions like buying habits, customer insight etc. It also increases customer loyalty with the integration of loyalty programs.

A closed-loop also offers benefits to the customer like purchase/loyalty incentive, balance top-up ability and pre-ordering.

Closed-loop – Disadvantage:

No doubt it is convenient to use but a customer requires managing a payment app for each vendor. So a single central platform is absent from which they can make the purchase. That simply means a user needs to manage 10 separate apps if the user wants to use their phone to 10 different retailers.

Do you need to implement a closed-loop mobile payment system?

Due to the bar code scanning capabilities of mobile device customers are now showing a keen interest in the closed-loop mobile payment system. It provides an extra security step between the merchant and the bank account. Users are now more concerned about using self-branded wallets.

As compared to direct credit card transactions the vendors also benefit from the smaller purchase fees. The potential market is huge because billions of people use smartphones. Customers are now very much interested in turning their smartphones into payment machines.

For this purpose, you need to connect with an expert app developer. Keep in mind that a closed-loop mobile payment system is a win-win for both customers and vendors.


A closed loop payment system carries a great advantage for both merchants and users. Thanks to smartphones that make it more popular in the market. Due to its simplicity, secured and easy use, customers could go with this kind of payment system.