DEFINITION of ‘Open Loop Card’
A credit card, debit card or gift card that a consumer can use to make purchases anywhere that a card is generally accepted. An open loop card carries a major credit card company’s logo: Visa, MasterCard, American Express or Discover. These cards are much more useful than closed loop cards, like store gift cards and store credit cards, which can only be used at a single store or a small group of stores owned by the same company. When you think of a typical credit card, you’re thinking of an open loop card.
INVESTOPEDIA EXPLAINS ‘Open Loop Card’
Sometimes stores issue both closed loop and open loop cards. A department store might offer one credit card that can only be used at that store, and another credit card that can be used at any store, and both cards might give the cardholder rewards that can be redeemed at the department store. The closed-loop card may be easier to qualify for than the open-loop card and will probably have a lower credit limit since the amount of money a customer is likely to spend at a single store is probably less than what they would spend on an open loop card that can be used almost anywhere.
While open loop gift cards can be used anywhere that accepts credit cards, they often have an activation fee of $5 or so, while closed loop gift cards do not. Open loop gift cards can also be reloaded; some closed loop gift cards cannot be reloaded. The debit card tied to your checking account is also an open loop card if it has a major credit card company’s logo on it.
Then there are open loop payment cards that are used for some public assistance benefits. For example, these 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 card, which can be used to make qualifying health care purchases from any merchant that accepts credit cards. 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. Some of these cards come with numerous fees, but workers can use them anywhere that credit cards are accepted.