What open loop is
An open-loop card works at merchants that accept its network and have the required payment-processing setup. Visa and Mastercard are common examples. The cardholder's bank issues the card, while the card network connects that bank with your acquiring bank.
Credit, debit, prepaid and some gift cards can use open-loop networks. A Visa-branded debit card, for example, is not limited to the bank that issued it. Open loop describes how acceptance works, not one specific card type or fee.
Open loop expands where a card works, but it does not set your processing rate.
How an open-loop payment works
When a customer pays, your processor sends the transaction through your acquirer and the card network to the card's issuer. The issuer checks the payment and returns an approval or decline through the same chain. This authorization exchange takes a few seconds.
The network provides shared rules and routing between different financial institutions. Your business, the issuer and the acquirer have separate roles. In a card transaction, the issuer provides the customer's card account, and the acquirer connects your business to the network.
What open loop means for your costs
Open loop is not a fee line or a pricing plan. Your card costs come from interchange paid to the issuing bank, network fees paid to the card network, and your processor's markup. Only the markup is negotiable.
The card type, whether the sale is in person or online, and the transaction details affect the processing cost. For example, a card-not-present sale can have different costs from an in-person card sale. Open-loop acceptance gives customers more card choices, but it does not mean every card costs the same to accept.
Open loop versus closed loop
A closed-loop card is limited to a particular retailer or system, such as a store gift card. An open-loop card works across merchants connected to its network. If you accept both, a customer might pay for a purchase with a network-branded credit card or use your store gift card, but those payments travel through different systems.
What you can actually change
You do not control the network's shared rules or interchange schedule. You can review your processing setup and negotiate the processor markup, the negotiable part of your card costs.
- Compare your card-processing costs by card type and by in-person versus online sales.
- Separate interchange, network fees and processor markup on an itemized statement.
- Compare processor markup and monthly charges when reviewing processing offers.
- Offer a closed-loop option, such as your own gift card, if it fits your customers and business.
- Map your payments. List the card types and sales channels your business accepts, then compare their costs.
- Separate the charges. Use an itemized statement to distinguish network costs from your processor's markup.
- Review your options. Compare processing offers and consider whether a store gift card suits your customers.
Frequently asked questions
What is an example of an open-loop card?
A Visa or Mastercard credit or debit card is a common example. It works at merchants connected to that network, not only at the bank or business that issued it.
Is open loop the same as closed loop?
No. Open-loop cards work at merchants connected to a shared card network. Closed-loop cards, such as a store gift card, are restricted to a particular retailer or system.
Do open-loop cards cost more for a business to accept?
The open-loop label does not set a fee. Your card costs include interchange, network fees and processor markup, and costs differ by card type, sales channel and transaction details. The processor markup is the negotiable part.