A closed-loop payment device (closed-loop card, closed-loop contactless wristband) is by definition a “closed” system. The payment device can only be used in this dedicated network and nowhere else: a stadium, a store, a festival, a street, a building, a campus… A closed-loop payment device will be unusable and unrecognized on open payment networks such as Mastercard®, Visa or American Express. The appeal is obvious, since users will only be able to spend within the predefined context. That’s why event organisers are jumping on the bandwagon, quickly recognising the high potential and numerous benefits.
1st advantage of closed-loop payment: dematerialisation of payments within the closed network
While the world of events sees a great deal of cash in circulation, with all the attendant risks (cash register errors, losses, tracking difficulties, fraud and the underground economy, cash in hand, customers without change unable to pay), the digitisation of exchanges and the total elimination of cash considerably facilitates the management and acceptance of payments. Bars, nightclubs, sporting and cultural events are increasingly developing this type of payment media to make transactions more fluid and transparent. Added to this are cash-back systems and digitalised loyalty programmes to support promotional operations, all automated.
2nd advantage of closed-loop payment: total control over transactions and customer retention
The closed loop clearly gives the payment provider total control over the flows circulating on its closed network. The money is pre-loaded onto the closed-loop card, the closed-loop e-wallet or the closed-loop payment wristband, and spending is secured within its network. The company in charge of the closed-loop payment programme has full visibility. Let’s take an example. As part of a sporting event, a club could offer its members a rechargeable fan card that can only be used inside the stadium. Fans could recharge their cards from their phones or electronic wallets, then make purchases inside the stadium. Payment for all products and services could be made via the card: drinks, food, goodies, tickets for the next match or even ancillary partner products sold in the zone. Payment is secure and immediate. Transaction tracking is smooth and transparent.
3rd advantage of closed-loop payment: no network constraints
The clear advantage of the closed loop is that it is not dependent on open networks such as VISA or Mastercard®. A private, restricted network means greater flexibility when it comes to setting up the programme in terms of regulations and technical aspects. All that’s needed is to integrate the appropriate software for connection to the payment programme into each payment terminal and, potentially, each cash register. The payment medium is automatically identified according to the security criteria defined, the balance is known and the transaction is carried out in real time. In the context of events, adapted VSEs and crates require an upstream installation whose initial investment quickly pays for itself over several events. Nevertheless, it remains essential to maintain KYC, KYB, AML and GDPR control rules for all programmes, whether in open or closed loop!
What if we wanted the best of both worlds?
While the closed-loop payment model and the open-loop payment model are indeed 2 distinct models with their own rules, there are also hybrid models that can meet specific constraints and thus offer the best of both worlds. If we take the example of a store with a reloadable loyalty card, payments made in its network of shops and partners encourage customer retention within its network. The customer spends only where possible. We are in a closed-loop payment model. If the store chain expands its network of partners or its geographical area, it is highly likely that the closed loop constraint will quickly become an obstacle to extending the programme. It is also possible to imagine open-loop models (i.e., payment media on an open network such as Mastercard or VISA), but with their own restrictions: choice of authorised product category (e.g., clothing, restaurants, gasoline, etc.), selection of authorised merchant codes (e.g., merchant code of a brand with its chain of stores). These restrictions lead to a hybrid format of the open loop, since it remains on an open network such as VISA or Mastercard, but it frames the use in a more or less restrictive way. Today, there are many possible settings between open loop and closed loop, and event professionals have understood this.