Open Loop Vs Closed Loop Gift Cards: How To Pick The Right Incentive

Are you trying to choose between open loop vs closed loop gift cards? These types of rewards are a powerful tool for businesses, but there’s more nuance to them than meets the eye.

Tl;dr: Open loop cards offer incredible flexibility, allowing recipients to spend their rewards almost anywhere. Closed loop cards are gift cards tied to specific retailers, offering a more controlled spending experience. Both are important offerings from any gift card provider, for different reasons.

In this article, we'll explore the key differences between open loop and closed loop systems, along with advice on how and when to use these different types of gift cards.

Open loop gift cards

Let’s start with some gift card basics. There are two main types of reward cards you can offer recipients: open loop and closed loop.

Open loop cards, like prepaid Visa® and Mastercard®, are incredibly versatile digital rewards. They can be used where Visa and Mastercard is accepted, whether in-store or online, making them ideal for general rewards and incentives. Some open loop cards, like the Giftbit Virtual Prepaid Mastercard, can even be used internationally, making them great options for global rewards programs.

Overall, these cards give recipients the freedom to choose how and where to spend their funds, offering a level of flexibility that’s hard to beat.

They’re also popular options for programs that want to encourage recipients to ‘shop local’ at smaller establishments.

Prepaid cards vs gift cards

Now for a few more basics. It’s also easy to mix up prepaid cards and gift cards, but they’re not the same, and understanding the difference is key to choosing the right option for your program.

Gift cards are one-time load cards tied to specific retailers like Starbucks or Amazon. Simply put, if someone receives a Starbucks gift card, they can only use it at Starbucks.

Meanwhile, like we’ve covered, prepaid cards are much more flexible. They’re backed by networks like Visa or Mastercard, and they can be preloaded with a set balance. They’re popular because they don’t affect the cardholders’s credit and offer broad spending power. For this reason, they make great rewards as well as great digital payouts.

Bottom line, gift cards are ideal for brand-specific rewards, while prepaid cards provide the freedom to spend almost anywhere. We’ll provide some examples of when to use each type of card in your employee engagement and customer loyalty programs further below.

How to set up an open loop prepaid card program

Setting up an open loop card prepaid program is straightforward when you have the right tools.

First, you’ll need to partner with a gift card platform that offers a wide range of prepaid card options, like Visa or Mastercard. The provider should allow you to easily order, distribute, and track these cards in a variety of formats.

Next, consider your customization options. Personalized messages will make your rewards more meaningful—and therefore more impactful, too.

Be sure to choose a gift card distributor that offers seamless integration into your existing systems, so you can automate the entire process—from selecting the card type to sending it out to recipients. You should be able to easily control the amount of money you send to whom, and when.

To streamline this process, many companies will use a gift card API or an integrator like Zapier—integrating in this way can be especially important for large and growing programs.

Smaller programs might opt to use a user-friendly platform that lets you manage everything in one place.

Either option will ensure that your program can scale effortlessly and that rewards are sent out promptly and accurately.

Pro-tip: use a Visa prepaid card API for seamless digital rewards.

Finally, ensure your provider offers support and transparency. Look for one that provides clear pricing with no hidden fees, along with solid support for programs of all sizes. This way, you can focus on running your incentive program while the logistics of card distribution are handled smoothly in the background.

“When a company pays money for an incentive, all of that cost should go to the incentive itself,” says Giftbit CCO Nat Salvione. “We believe that digital rewards and incentives simply work the best for most businesses, and that if your program is transparent and we make it easy to send, you’ll keep using us."

Closed loop gift cards

Now let’s explore closed loop gift cards, and when it makes sense to use them.

Closed loop gift cards are designed for specific retailers or brands—think Target, Walmart, or Apple. These cards can only be used at the designated store or group of stores, making them an excellent choice when you want to guide recipients toward a particular shopping experience.

The main advantage of closed loop gift cards is their ability to drive recipients to a specific retailer. This can be particularly useful if you’re running a promotion with a partner brand or want to ensure that rewards are spent within a certain category, like groceries, electronics, or dining.

How to set up a closed loop gift card program

Setting up a closed loop program is virtually no different than setting up an open loop one.

Just like with open loop prepaid cards, you’ll want to look for a transparent and fairly priced platform that offers automation options and solid support.

Bonus: if you find the right provider, you should be able to offer both types of rewards in the same platform.

From there, you’ll want to develop a program that use the right mix of rewards to align with your program’s goals. This means you’ll need a provider that offers a wide selection of popular brands and makes it easy to order and distribute your chosen rewards.

Pro-tip: Giving the recipients to choose their reward is incredibly effective. Consider letting them choose whether they want a prepaid card like Visa or Mastercard, or a gift card from one of their favorite retailers, restaurants, or grocery stores.

Advice for business owners

Don’t worry—if you just want to use gift cards, you don’t need to memorize all these industry terms. You can set up an incredibly effective rewards and incentives program without understanding the ins and out of financial institutions, card networks, card processing, activation, or payment systems.

What’s more important is to be aware that there are different types of cards, and that not all gift card distributors give them the same priority.

Specifically, be cautious of providers who push open-loop cards like Visa and Mastercard while sidelining store-specific gift cards.

Some companies might steer you toward open-loop cards because they profit more from them, even if they’re not the best fit for your program. They might also require your recipients to download a separate app to use their prepaid open loop cards, adding unnecessary friction to the reward process.

Pro-tip: Choose a provider that values both open and closed loop cards equally, ensuring a smooth experience for your recipients to maximize your program’s success.

Customer loyalty and more: best use cases for each type of card

Choosing between open loop and closed loop gift cards depends on your program’s goals and the experience you want to create for your recipients.

Open Loop Cards
Open loop cards are best for programs where flexibility and broad acceptance are key. Many businesses use them for:

• customer loyalty programs

• large-scale incentives

• employee rewards

• payouts

For example, high-denomination prepaid cards can make incredibly effective telecom incentive strategies. Many Giftbit clients in this highly competitive space use them to incentivize switching providers. This can be a big ask, given the amount of time and effort needed to change plans, transfer data, and navigate new systems. But offering Visa or Mastercard prepaid cards valued between $200-500 can significantly motive potential new customers to switch.

“We've helped telecommunications customers do really successful promotions where they are using prepaid cards as a way of incentivizing provider switching. There's usually a finite population of customers for telecommunications companies, so they need to find interesting ways to compel them to consider switching between the number of providers available in their area." 

Matt Brossard
Giftbit Director of Business Development

Additionally, these cards leverage the brand power of Visa and Mastercard, providing recipients with a trusted and recognized payment method.

Closed Loop Cards
Closed loop cards are great for more targeted rewards. These cards work well for brand-specific promotions, partnership incentives, or seasonal campaigns where you want to direct spending to particular stores.

For example, you could give all your remote employees a DoorDash card to enjoy a virtual team lunch together.

You might offer Amazon gift cards for a holiday shopping spree, or a spa gift card to employees as part of broader health and wellness initiatives.

Hint: in our current economy, new research shows that gas and grocery cards are incredibly effective.

Combine different rewards

Using a mix of open and closed loop cards will let you leverage the perks of both.

Open loop cards provide broad spending power, while closed loop cards offer targeted, brand-specific rewards that can help create tailored, memorable experiences for your recipients.

By combining both, you can create a well-rounded rewards program that maximizes satisfaction and engagement.

Giftbit makes it easy to send both open and closed loop gift cards for a variety of use cases. There’s never any fees to use our platform: sign up now, or chat with Sales to learn more.