In the ever-evolving world of retail and customer engagement, closed loop gift card programs are making a significant comeback. These programs, often seen in the form of store-specific or branded gift cards, have a long history of driving customer loyalty and enhancing the retail experience. But as businesses continue to innovate, what makes closed loop gift cards an attractive option for enterprises today?
In this article, we’ll explore the mechanics of closed loop gift card programs and why more companies are leveraging them to achieve greater control, efficiency, and customer loyalty.
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A closed loop gift card is a type of prepaid card that can only be used at a specific retailer or group of affiliated merchants. Unlike open loop gift cards, which are typically issued by financial institutions and can be used at any merchant that accepts credit or debit cards, closed loop cards are confined to a specific ecosystem of stores or services.
For example, a Starbucks gift card can only be redeemed at Starbucks locations, either in-store, online, or via the Starbucks mobile app. Similarly, airlines and hotel chains often offer closed loop gift cards that can only be redeemed for services like flights or room bookings. These programs enable businesses to create tailored solutions that are designed to drive customer engagement while maintaining control over how the gift card is used.
Closed loop gift card programs are built on a relatively straightforward foundation, but their implementation requires careful attention to detail, especially for enterprises seeking to scale.
The process starts with the issuance of the gift card. Businesses can offer both physical and digital versions, depending on customer preferences and the technological infrastructure in place. Physical cards can be purchased in-store or through third-party retailers, while digital gift cards can be sent via email or accessed through a digital wallet.
Once issued, the cardholder can redeem their gift card at participating locations—whether at the point of sale (POS) in physical stores or through online platforms. Digital cards often provide additional flexibility, allowing customers to redeem their balance through mobile apps, providing a seamless omnichannel experience.
For a closed loop gift card program to be successful, businesses must have a robust payment infrastructure. This includes point-of-sale systems that can accurately track the balance of the gift card, as well as integrations with online and mobile platforms. Additionally, many enterprises choose to integrate gift cards into their broader loyalty and rewards programs, enabling customers to earn and redeem points alongside gift card usage.
Closed loop gift card programs are not only a way to encourage gifting; they also offer several strategic advantages for businesses.
One of the most compelling reasons for businesses to use closed loop gift cards is the ability to drive customer loyalty. When a consumer receives a gift card to a specific brand or merchant, they are incentivised to return and spend their balance—often resulting in additional purchases. This increases the likelihood of repeat business, as customers are more likely to return to use the funds, and studies by the Gift Card & Voucher Association show that many gift card recipients spend more than the value loaded onto the card.
Another significant advantage of closed loop cards is the level of control businesses have over where and how the gift card is used. Unlike open loop cards, where the merchant does not have visibility into how the funds are spent beyond their own store, closed loop cards allow businesses to track consumer spending patterns within their ecosystem. This gives companies valuable insights into consumer preferences, enabling them to tailor marketing efforts and improve customer retention strategies.
Moreover, businesses retain ownership of data generated by closed loop gift card usage. This data can be used to enhance customer experiences, optimise product offerings, and fine-tune loyalty programs.
For businesses, the cost of processing transactions on open loop cards can add up, particularly when the transaction fees charged by financial institutions or payment processors are taken into account. By using a closed loop gift card program, businesses can reduce these processing costs, as transactions are contained within their own system. This can be a significant cost-saving measure, particularly for large-scale enterprises with a high volume of gift card transactions
One of the key benefits of implementing a closed loop gift card program is the potential to drive increased customer spend. Gift cards often encourage recipients to visit a store or website, and customers frequently spend more than the value of the card itself. In 2023, 43% of gift card users spent an average of £10 more than the card's value, highlighting the opportunity for retailers to boost revenue through uplift spending. This behavior highlights how gift cards can serve as a valuable tool for both drawing in new customers and increasing the overall basket size of transactions. For businesses, this added revenue can make gift card programs an even more appealing strategy to enhance profitability.
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Closed loop gift card programs are subject to a number of regulations aimed at protecting consumers and ensuring fair practices. Regulations may vary by jurisdiction, but common areas of compliance include consumer protection, expiry dates, and breakage rules.
Gift cards must be designed in a way that ensures consumer rights are protected. For example, cards must be issued with clear terms and conditions, including rules on how the gift card can be used, any expiration dates, and potential fees that may be charged. Additionally, businesses are required to disclose any restrictions on the card, such as blackout dates or restrictions on certain products or services.
Gift card expiration dates are a critical point of regulation. In many regions, gift cards cannot expire within a short time frame, and businesses are required to comply with rules regarding the “breakage”—the unspent balance left on a card after a customer stops using it. These regulations ensure that consumers have sufficient time to redeem their gift cards while limiting the financial impact on businesses.
For large enterprises managing extensive gift card networks, staying compliant with regulatory standards is essential. Failure to do so could lead to penalties or damage to the brand’s reputation. This is where technology partners, such as Edenred Payment Solutions, can provide vital support to ensure compliance and streamline the management of closed loop gift card programs.
Edenred Payment Solutions offers businesses the tools they need to develop and scale closed loop gift card programs while ensuring regulatory compliance and enhancing the customer experience.
Edenred Payment Solutions’ platform allows businesses to create branded gift card solutions tailored to their unique needs. Whether it's for a single location or a network of affiliated merchants, Edenred Payment Solutions offers flexible options that support both physical and digital gift card programs.
The deep expertise in regulatory compliance means that enterprises can trust their gift card programs are designed to meet the necessary legal and financial standards. From program inception to the final redemption of funds, Edenred Payment Solutions ensures that businesses can focus on customer engagement and brand growth without worrying about compliance issues.
In today’s retail landscape, a seamless omnichannel experience is essential. Edenred supports integration with mobile wallets, e-commerce platforms, and physical point-of-sale systems, ensuring customers can redeem their gift cards anywhere, anytime. This creates a cohesive, engaging experience that strengthens brand loyalty and drives sales.
Whether you’re looking to build a customer loyalty engine, digitise your employee perks, or streamline reimbursements, we can help you design a scalable, compliant, and future-ready solution.
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Closed loop gift card programs offer businesses a powerful tool to enhance customer loyalty, streamline operations, and reduce costs. Whether you’re driving repeat business, gaining deeper insights into customer behaviour, or ensuring regulatory compliance, these programs can deliver significant strategic advantages.
If you’re looking to build or optimise your closed loop gift card program, explore how Edenred Payment Solutions can help you design a modern, compliant, and flexible gift card ecosystem that meets the needs of your business.
With Edenred Payment Solutions as a trusted partner, retailers can unlock the full potential of their gift card initiatives, by leveraging our expertise and resources, to drive customer engagement and foster lasting brand loyalty.