What is an Open Loop Card?

What is an Open Loop Card?

Let me explain what an open loop card is—it's a general-purpose charge card you can use anywhere that accepts its brand. It typically shows the logo of the card brand or network that handles the transactions, like Visa, Mastercard, American Express, or Discover. If it's issued by a financial institution, such as a Visa or Mastercard, you'll often see the name of the issuing bank or credit union on it too.

These cards come in forms like credit cards, debit cards, gift cards, or prepaid cards. The partnerships for issuing them can vary in structure. Remember, the opposite is a closed loop card, which you can only use for purchases from a single company or retailer, such as a department store.

The Basics of an Open Loop Card

Any charge card that's widely accepted at various merchants and locations qualifies as an open loop card. You can find them in different forms, and they're designed for broad usability.

Credit Cards

When you think of credit cards, you're usually picturing open loop cards: that plastic issued by your bank, credit union, or financial services company, which lets you buy goods or services at many places, both in-person and online. Each month, you get a statement with your charges, and you can pay it off fully or partially.

These cards are issued by a financial institution in partnership with a processing network like Visa or Mastercard. For American Express and Discover, they handle both issuing and processing themselves.

Debit Cards

Your debit card linked to a checking account, which pulls funds immediately upon purchase, is also an open loop card. It works with a network processor and carries the branded logo, so you can use it anywhere the network is accepted.

Gift Cards and Prepaid Cards

Prepaid cards loaded with funds for later use can be open loop too. General prepaid cards are reloadable and suitable for ongoing payments or recurring bills. Gift cards, typically usable only until the funds run out, are open loop if they're not tied to a specific store.

Some prepaid cards handle public assistance benefits—for instance, certain cards let qualifying people buy food at any grocery store accepting Visa. Flexible spending account cards are another type of open loop prepaid card, usable for qualifying health care purchases at any merchant that takes the branded processor.

You'll also find open loop payment cards used as payroll cards for workers without bank accounts or direct deposit options, avoiding check-cashing fees. Employers team up with issuers to offer these as a benefit, though some come with fees; you can use them anywhere the network brand is accepted.

Note that the annual growth rate of open loop prepaid cards is forecasted at 2% through 2023, according to Mercator Advisory Group.

Co-Branded Cards

Many retailers, even if they have their own proprietary cards, partner with a bank and a credit card network to offer open loop credit cards, such as an Amazon Visa or a SaksFirst Mastercard. These co-branded cards display both the retailer's and the card company's logos, giving you the best of both: usability anywhere, plus rewards points, perks like free delivery, or special sale access when used at the store. Unlike store-specific cards, these often have annual fees.