Ever heard of open loop gift cards or closed loop gift cards? Even if you haven’t heard about either of those kinds of gift cards, every gift card falls into either of those categories. Let’s dive into what they both mean.
What Are Open Loop Gift Cards?
In simple terms, open loop gift cards are gift cards that are accepted everywhere. They are like credit cards; they can be used anywhere as long as the stores accept them. The name of the store is usually beside logos like Mastercard or Visa. Another example of an open loop gift card is an American Express gift card.
1. They are almost like cash.
2. They can be used anywhere as long as the store accepts their processors.
The major disadvantage of open loop gift cards is that they require activation fees from the users, and sometimes, dormancy fees depending on which processor is being used (Visa or Mastercard).
What Are Closed Loop Gift Cards?
Closed loop gift cards are gift cards that belong to a store or company and can only be used at said company. Many businesses mostly use closed-loop gift cards as a marketing strategy to get returning customers. Examples of closed-loop gift cards are Amazon gift cards, Netflix gift cards, Starbucks gift cards, etc.
Gift cards that can be used in affiliate or sister companies of a brand are another category of closed-loop gift cards. An example of this is the Footlocker gift card. A Footlocker gift card can be redeemed not only in Footlocker but also in Champ Sports and Eastbay.
Pros of Closed Loop Gift Cards
1. There are zero activation fees.
2. They are perfect gifts for people that love to visit a particular store.
3. They enhance customer loyalty.
Cons of Closed Loop Gift Cards
1. Limited flexibility.
2. If the receiver isn’t close to any of the stores, they may not be able to redeem them.
For instance, imagine you traveled to the USA for the holidays, and you were given a Nordstrom gift card, but you forgot all about it, and you found it in your suitcase when you returned to Nigeria, what do you do with it? All hope isn’t lost, the preferred option would have been to redeem it at the store, but since that is impossible, you may have to end up selling the Nordstrom gift card on a trusted trading platform, that way, the gift card isn’t wasted.
Both categories of gift cards are great, it all depends on your wants and needs, or the needs of the receiver.