Where the value is spendable
- Open-loop
- Almost any merchant, worldwide
- Closed-loop
- Inside one defined ecosystem
- 7Konto
- Inside the programme's network, POS and online
Compare
Two models that are not competing for the same job
Open-loop payments move money between banks across millions of merchants. Closed-loop payments move value inside one defined ecosystem. Almost every business needs both, and the useful question is not which to pick but which one a given programme belongs in.
Updated
At a glance
- Open-loop
- Visa, Mastercard; works everywhere; carries interchange
- Closed-loop
- One ecosystem; no scheme; no interchange
- Regulation
- Banking rules vs the limited-network exemption
- Typical outcome
- Both, for different programmes
Updated
Where the difference actually comes from
Open-loop works because a scheme sits between the two banks and guarantees that a card issued anywhere is accepted anywhere. That guarantee is the product, and interchange is what it costs.
Closed-loop drops the guarantee. The value is only good inside one ecosystem, so no scheme is needed, no interchange is charged and no transaction data leaves. That is a worse deal for general-purpose spending and a much better one for a gift card.
The regulatory position follows the same line. A general-purpose payment instrument is a banking activity. A closed-loop instrument, inside a limited network, is exempt under PSD2 and comparable frameworks — which is why a gift card programme does not need an EMI licence and a debit card does.
- A programme that must work at any merchant is open-loop, always.
- A programme where the merchant wants the float, the data and the economics is closed-loop.
- Running both is normal: the card terminal accepts both, on the same counter.
Side by side
The same six questions, answered for each model.
Who sits in the middle
- Open-loop
- Visa, Mastercard and two banks
- Closed-loop
- Nobody
- 7Konto
- Nobody
Interchange
- Open-loop
- Yes, per transaction
- Closed-loop
- No
- 7Konto
- No
Who holds the float
- Open-loop
- The cardholder's bank
- Closed-loop
- The programme operator
- 7Konto
- The merchant or the partner
Transaction data
- Open-loop
- Shared with the scheme and the banks
- Closed-loop
- Stays in the ecosystem
- 7Konto
- Stays with you and the merchant
Licence needed
- Open-loop
- Banking or EMI authorisation
- Closed-loop
- Usually exempt: limited network
- 7Konto
- None for the usual programmes
Best used for
- Open-loop
- General spending
- Closed-loop
- Gift cards, allowances, restricted budgets
- 7Konto
- All of the closed-loop cases, turnkey
What this means in practice
Do not replace, add
A closed-loop programme takes spending that was cash, paper vouchers or nothing at all — not spending that was already on a card.
Watch the boundary
A closed-loop network that becomes too broad stops being a limited network, and the exemption stops applying. That boundary is worth designing for deliberately.
The economics reverse at scale
Interchange is a fixed percentage; a closed-loop programme's cost per transaction falls as volume rises.
Questions about this
What is a closed-loop payment platform?
It lets you issue and process payments inside your own ecosystem — gift cards, prepaid balances, employee accounts — without routing every transaction through Visa, Mastercard or a bank. The funds stay in your system, so the fees, the data and the customer experience are yours to set.
How is 7Konto different from PassKit or Badge?
Those are Wallet pass products: they distribute passes, they do not process payments. 7Konto is a closed-loop payment platform with a ledger, transaction processing, POS integration, an online checkout widget and PSP embedding. A card issued here carries a real balance that is charged in real time.
Is this the Starbucks model?
The same economics, without the app. Starbucks built a custom application customers had to install, and holds a very large prepaid float as a result. 7Konto delivers the closed-loop side of that through Apple Wallet and Google Wallet, so there is no app to develop and no install step to lose people at — and through PSP embedding it extends to a whole merchant portfolio rather than one brand.
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