In many scenarios, open and closed loop payment cards are easy to fund, distribute and redeem. But are they doing everything you want in terms of user experience, brand-building and directed spending? Here’s why a custom loop payment card may be perfect for your brand, your customers – and your business goals.

Billions are spent on incentive marketing, loyalty and rewards programs each year. And those billions don’t just include payments, gifts and prizes. From program design, to promotion and advertising, to administration and redemption, these programs represent large and strategic investments for companies that finance them.

The value of these programs is undeniable. Consumers get credit for their ongoing patronage and purchases. Brands reap the benefits of steadier and stronger top line results. Plus, the insights gained from customer behavior and purchase habits can be mined to take offers, messages – and sales – to entirely new levels of performance.

But payment card ubiquity has created, to some extent, a one-size-fits-all sensibility when it comes to using payment cards in rewards and loyalty programs. Payment cards have generally been classified into two main types:

  1. Closed Loop. Spendable at only one place. These are the classic gift cards we’re
    all familiar with.
  2. Open Loop. Spendable anywhere debit cards are accepted. Provides universal
    and infinite choice for the cardholder.

Custom Loop CRM: Cardholder Relationship Management

In order to provide the best customer experience possible, your payment card should feel less like an automated funding mechanism, and more like a custom currency for your company, building relationships with your customers and cardholders while at the same time supporting your marketing and business goals.

Your cardholders and constituencies should get offerings that not only meet their needs, but give them a reason to smile. And in return, you should realize a solid ROI for your investment and customer goodwill that is reflected in return visits, more frequent purchases, and brand equity appreciation.

Custom loop payment cards offer rich opportunities for marketing executives, advertising agencies and sponsors to create programs that benefit everyone in the value chain without the need for integrated POS card acceptance. The key is designing a payment network that is optimized for your company and your customers.

Why Care About Closed Loop and Open Loop Differences?

Aside from the fundamental problems and inconvenience of reducing choice and not being tailored to personal preferences, there are other implications:

  • Closed Loop Cards Can Alienate Recipients. You risk distancing your company from cardholders who don’t like certain stores, restaurants, products or services.
  • Closed Loop Cards Are Not Always Feasible. A Closed loop card may not be feasible due to POS integration challenges or IT development priorities.
  • Open Loop Cards Are Impersonal and Have Limited Influence on Customer Behavior. Open loop cards are more likely to be used for everyday items such as groceries or gas, which do not enhance the customer experience.
  • Directed Spending Capabilities and Customization Are Minimal. There are strategic marketing reasons to direct the spend generated from your payment cards. You can keep incentive or reward dollars in a network to promote crossselling, basket growth, and new product and market trials. You can ensure that rewards are spent on special, unique buying experiences that may not be normally purchased by a cardholder.

Custom Loop Cards: Unlocking Value, Delivering a Better Cardholder Experience

  1. Direct the Spend. Match your incentive and loyalty payment cards with your long-term revenue objectives. Direct the spend towards your own products and services or to partners that drive sales for your company. Are you a purveyor of fine coffees and teas? Reward employees and customers with payment cards that can only be used at merchants that buy and sell your coffees and teas.
  2. Customize for Better Fit and Feel. Sometimes it really is the thought that counts. Align your payment card with customer tastes, preferences and aspirations. Even a small amount of custom payment network design shows that you’re listening, watching and trying to give cardholders what they want and appreciate.
  3. Maximize Your Cost-to-Spend Ratio. Custom loop cards can provide better value for your investment by driving spend back to your brand and your partners. Custom designed networks usually drive higher utilization rates and happier customers.
  4. Overcome Closed Loop Redemption Challenges. Closed loops in many cases can deliver a solid marketing result (versus open loop which has no unique buying experience, is impersonal and directs no spend), however closed loop may be difficult to implement when there are disparate POS systems involved or IT development restraints. Overcome the redemption challenge with a custom loop program

While some marketing programs, including incentive and loyalty marketing can be difficult to measure, custom loop cards give you more variables to control and measure. Knowing, analyzing and discussing your marketing and payment card systems is an exercise in refinement that can lead to better cardholder intelligence and marketing program performance.

Building a custom loop payment card can be one of the best ways to counter marketplace sameness, rise above competitive noise, and drive program ROI. Companies that do it well will create a better customer and cardholder experience and position themselves for long-term financial growth built on better cardholder relationships and networks.

Set up your incentive marketing, loyalty or rewards program for success. Achieve the ROI and brand-building you want, and the experience your cardholders deserve. And when you do, you’ll find yourself in a much better position to build relationships – and sales – that will help your company thrive.