Open Loop Mobile Payments

The Difference Between Open Loop And Closed Loop Mobile Payments

In order to increase their appeal, some vendors use the phrase “mobile payment system” on their products, which leads to misunderstandings about what the technology entails. There are different types of mobile wallets, such as open-loop mobile wallets and closed-loop mobile wallets, as well as merchant solutions that accept mobile payments. Closed payments can be thought of as gift cards and open payments as credit cards.

Open Loop Mobile Payments

A centralized digital wallet can be used to pay at multiple locations through an open-loop mobile payment solution. Transport and other services are attracting attention around the world as advantages of open-loop payments. 

A system that allows payment methods without requiring access to the payment system can be considered “open-loop”. Basically, a customer does not need to be affiliated with the transport network to pay with their contactless card. This allows them to use the same payment method for multiple payment services.

Closed-Loop Mobile Payments

A closed platform involves a pre-funded amount that is topped up when the money runs out, while an open platform is connected to a personal account like a credit card. Closed payments can be thought of as gift cards and open payments as credit cards.

Closed-loop mobile payments refer to allowing consumers to load money into a spending account associated with a payment device – such as a gift card for a particular firm. Consumers can use their smartphones to handle their gift cards or payment accounts with closed-loop mobile payment systems. Instead of using a physical card, consumers are able to view their account balance, add funds, and initiate transactions using a smartphone app.

Understanding the differences between Open Loop Payments And Closed Loop Mobile Payments

Open platforms have proven to outperform closed systems in the majority of cases because their very openness allows them to rapidly increase functionality and therefore value for end-users. Despite the convenience of closed-loop systems for interacting with a single vendor, they also require consumers to acquire and manage payment apps for different vendors, instead of having one main hub from which they can make transactions. In this scenario, a user would need to manage 10 separate apps in order to use their phone’s payment capabilities at 10 shops, each with a proprietary system.

In simple terms, the benefit of open-loop payments for end-users is convenience. One centralized digital wallet that lets you pay anywhere, anytime, from your smartphone would theoretically be a better solution than managing multiple proprietary applications from different vendors.

On the other hand, from a merchant point of view, closed-loop payments can capture big data on customer transactions, such as insights into customer behaviour, buying patterns, popular items, and even return on mobile marketing campaigns. Also, the ability to integrate loyalty programs within the application can lead to lower merchant costs and greater merchant loyalty.

Since most merchants aren’t in a hurry to accept payments via open-loop mobile wallets, the convenience offered to end-users has yet to be realized – at least in the current landscape.

In conclusion,

The rise of mobile payments, where consumers expect to be able to use their mobile devices to make payments, further encourage users to make mobile payments due to their convenience and efficiency. Open-loop account-based ticketing allows customers to pay in a way that suits them, and it leads to a frictionless experience that impacts the adoption of digital payment methods.

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