Open Loop Card

Open Loop Card

An open loop card is a general-purpose charge card that can be used anywhere that brand of card is accepted. Open loop cards can be credit cards, debit cards, gift cards, or prepaid cards. Open loop cards can be credit cards, debit cards, gift cards, or prepaid cards. Although they may have their own proprietary cards, many retailers are also team up with a bank and a credit card network processor to offer open loop credit cards, like an Amazon Visa or a SaksFirst MasterCard. Open loop cards are what most people think of when they think of credit cards: a piece of plastic, issued by their bank, credit union or financial services company, that they can use to purchase goods or services at a variety of places, both in person and on-line.

An open loop card is a general-purpose charge card that can be used anywhere that brand of card is accepted.

What is an Open Loop Card?

An open loop card is a general-purpose charge card that can be used anywhere that brand of card is accepted. It usually bears the logo of the card brand or network (which processes the actual transactions), such as Visa, MasterCard, American Express, or Discover. In the case of cards offered through financial institutions, like Visas or MasterCards, it often shows the name of the issuing bank or credit union as well.

Open loop cards can be credit cards, debit cards, gift cards, or prepaid cards. The partnerships involved with the issuance of open loop cards can be structured in various ways.

The opposite of an open loop card is a closed loop card, which can only be used to make purchases from a single company or retailer, like a department store.

An open loop card is a general-purpose charge card that can be used anywhere that brand of card is accepted.
The opposite of an open loop card is a card that can only be used at a specific retailer, known as a closed loop card.
Open loop cards can be credit cards, debit cards, gift cards, or prepaid cards.

The Basics of an Open Loop Card

Any charge card that is widely accepted at a variety of merchants and locations is considered an open loop card. Open loop cards can take a variety of forms.

Credit Cards

Open loop cards are what most people think of when they think of credit cards: a piece of plastic, issued by their bank, credit union or financial services company, that they can use to purchase goods or services at a variety of places, both in person and on-line. Every month, the cardholder receives a statement with his charges for that period, which he can pay off in full or in part.

This sort of card is issued to customers by a financial institution in partnership with that institution's processing network (Visa or MasterCard). American Express and Discover act as both their own issuing bank and network processor.

Debit Cards

The debit card tied to your checking account, which deducts funds from it immediately when you make a purchase, is also an open loop card. Like credit cards, debit cards work in partnership with a network processor and include its branded logo. Debit cards can be used anywhere that their processing network is accepted.

Gift Cards and Prepaid Cards

Prepaid cards loaded with funds for future use can be open loop cards too. General prepaid cards are reloadable and can be consistently used for payments and recurring billing. Gift cards, usually defined as cards that can usually only be used until the loaded funds have been depleted, are open loop if they are not specific to a certain store.

Some prepaid cards may also be used for public assistance benefits. For example, certain prepaid assistance cards might allow qualifying individuals to purchase food at any grocery store that accepts Visa. Flexible spending account cards are also a type of open loop prepaid card, which can be used to make qualifying health care purchases from any merchant that accepts the branded processor.

There are also open loop payment cards that can be used as payroll cards to pay workers who don’t have bank accounts, can’t receive direct deposits, and would have to pay a fee to cash a check. Employers partner with payroll card issuers to provide this card as a benefit for their employees. Some of these cards come with numerous fees, but workers can use them anywhere that the network brand is accepted.

Annual growth rate of open loop pre-paid cards through 2023 (source: Mercator Advisory Group forecast).

Co-Branded Cards

Although they may have their own proprietary cards, many retailers are also team up with a bank and a credit card network processor to offer open loop credit cards, like an Amazon Visa or a SaksFirst MasterCard. Known as co-branded cards, because they bear both the logos of the retailer and the card company, these cards offer the best of both worlds, so to speak: They can be used anywhere, but when used in the store, let cardholders accrue rewards points and get perks and privileges, like free delivery or special sale days. Unlike proprietary store cards, however, these co-branded cards generally have annual fees.

Related terms:

American Express Card

An American Express card is an electronic payment card branded by the American Express Company. read more

Cash Card

Cash cards, which may include debit cards, gift cards, or payroll cards, are electronic payment cards that store cash for various types of payments. read more

Checking Account

A checking account is a deposit account held at a financial institution that allows deposits and withdrawals. Checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits, among other methods. read more

Co-Branded Card

A co-branded credit card is sponsored by two parties: typically, a retailer and a bank or card network (Visa, MasterCard). It bears the logo of both. read more

Debit Card

A debit card lets consumers pay for purchases by deducting money from their checking account. Learn how debit cards work, their fees, and pros and cons. read more

Mastercard

A Mastercard is any electronic payment card that uses the Mastercard network for processing transaction communications. read more

Open Loop Card

Any charge card that is widely accepted at a variety of merchants and locations is considered an open loop card. read more

Payroll Card

A payroll card is a prepaid card some employers use to pay their employees' wages or salaries each payday. Discover more about payroll cards here. read more

Private Label Store Credit Card Defined

A private label credit card is a store-branded credit card that is intended for use at a specific store. It offers credit and sometimes special benefits at those stores. read more