Closed-Loop Gift Card
A Closed-Loop Gift Card is a gift card that can only be redeemed at the issuing store or brand. Unlike open-loop cards (which work across multiple merchants via a payment network like Visa or Mastercard), closed-loop cards are restricted to a single retailer or a defined group of affiliated stores. This is the most common type of gift card sold by individual eCommerce businesses.
How closed-loop cards work
The issuing store generates the gift card code, manages the balance, and handles redemption entirely within its own systems. There’s no involvement from external payment networks or banks. When a customer enters the code at checkout, the store’s own backend validates it, checks the balance, and applies it to the order. The entire lifecycle—from issuance to redemption—stays within the store’s ecosystem.
Benefits for merchants
- Full control: You manage the entire card lifecycle—pricing, expiration, balance rules—without third-party constraints.
- Brand loyalty: Recipients must shop at your store, driving traffic and potential upselling.
- Lower costs: No payment network fees (Visa/Mastercard processing fees don’t apply to closed-loop transactions).
- Simpler compliance: Closed-loop cards often face lighter regulatory requirements than open-loop cards in many jurisdictions.
Closed-loop vs. open-loop
An open-loop card is issued by a bank or financial institution and can be used anywhere that payment network is accepted (e.g., a Visa gift card). Open-loop cards offer recipients more flexibility but cost the issuer more in fees and are subject to stricter financial regulations. Most WooCommerce stores sell closed-loop cards because they’re simpler to implement, cheaper to operate, and keep the customer within the store’s ecosystem.