Your reward program's success often comes down to one thing: will people actually want what you're giving them? Open-loop gift cards solve this problem by letting recipients spend their incentive funds wherever they want. No more complaints about being stuck with a gift card to a brand they never buy from.
Open-loop gift cards work similarly to debit cards at numerous locations (sometimes worldwide). For businesses offering employee rewards, research incentives, or customer programs, open-loop cards are a great choice when recipient satisfaction matters most.
What is an open-loop gift card?
Open-loop gift cards pair with major payment networks like Visa, Mastercard, and American Express. Unlike retailer-specific gift cards, open-loop gift cards can be used just about anywhere their payment network is accepted.
The "open-loop" name describes this broad acceptance, as opposed to "closed-loop" gift cards that trap spending within one brand's ecosystem.
Exact rules vary by issuer, so you’ll always want to check the cardholder agreement to see how a particular open-loop gift card works. In general, recipients can use open-loop gift cards online, in stores, and sometimes even internationally.
Open loop vs. closed loop gift cards: when to choose each type of card
Open-loop gift cards make sense anytime you want happy recipients. Employee bonuses, survey payouts, widespread recipients — these types of incentive programs call for flexibility.
Closed-loop cards can work well for brand loyalty rewards or when you have a partnership with a specific retailer. Plus, recipients don’t have to deal with fees.
| Feature | Open-loop gift cards | Closed-loop gift cards |
|---|---|---|
| Acceptance | Typically anywhere network is accepted | Single retailer only |
| Branding | Common brands include Visa, Mastercard, and American Express | Retailer-specific branding such as Target, Amazon, and Starbucks |
| Global use | Frequently work internationally | Usually tied to a specific country or region |
| Fees | Sometimes come with issuance, maintenance, or inactivity fees | Rarely include fees |
How open-loop cards work
The process for how open-loop cards work is pretty straightforward:
Businesses order cards and load funds: Buy open-loop cards, either online or in-store. Platforms like Tremendous make it easy to order gift cards in bulk.
Rewards are scheduled and delivered: Distribute digital open-loop cards instantly via email or text message. If you’d rather give a tangible gift, you can mail physical open-loop cards directly to recipients or to your office.
Recipients activate cards: Make a quick website visit or phone call to set up the card and activate it for use.
Cards are used everywhere: Open-loop gift cards frequently work like a regular debit card (depending on the exact cardholder agreement).
Using a rewards platform that allows for bulk orders lets your team skip the manual work of shopping for gift cards and handing them out. Businesses that send a lot of rewards and incentives tend to automate the distribution process through a platform API.
3 benefits of digital open-loop cards for reward programs
Why do so many companies choose open-loop over closed-loop gift cards?
1. Flexibility and universal acceptance
Recipients can choose where and how to spend their rewards. Groceries, gas, clothes, dinner out — whatever they want.
2. Instant delivery
When you email or text a digital gift card, it arrives in seconds. No shipping delays, no lost mail, no awkward hand deliveries. Recipients can use rewards immediately and in-house teams save hours of time on manual processing.
3. One solution for global teams
Reward someone in Austin the same way you reward someone in Amsterdam. With internationally enabled open-loop cards, you don’t have to juggle different vendors or currencies. The major networks work everywhere, and some platforms can handle currency conversion and language translation for you automatically.
Common use cases
Employee recognition: HR teams use open-loop gift cards for spot bonuses and milestone rewards. Employees can buy what they actually want instead of pretending to be excited about company swag.
Research incentives: Survey companies and researchers use open-loop gift cards to incentivize participants.
Customer referrals: Marketing teams use open-loop gift cards for lead gen, referral, and loyalty programs. These gift cards’ broad appeal can work across different customer segments without excluding anyone.
Legal disbursements: Class action administrators sometimes use open-loop gift cards for settlements. Combined with digital delivery, class members get immediate access to funds in a secure, trackable format.
What to watch out for
Fees can add up fast. Activation fees and maintenance fees can eat away at recipients’ rewards. To avoid them, you can opt for closed-loop cards.
Expiration rules vary. Read the fine print to get info on expiration dates for the open-loop cards you choose. Different types of cards follow different rules, but the issuer should clearly state the expiration dates.
Tax implications get tricky. Employee rewards count as taxable income. For other types of incentive programs, you’ll need to handle tax reporting on larger amounts on a country-specific basis.
Some restrictions apply. Open-loop gift cards sometimes won't work for purchases like gambling sites, subscription services, and ATM withdrawals. Check with your card issuer about specific merchant category rules.
International fees might apply. Open-loop gift cards can work globally, but foreign transaction fees might still apply depending on the issuer’s rules.
Key takeaways
Open-loop gift cards sometimes come with more fees than closed-loop cards, but they deliver excellent recipient satisfaction. These cards work best when you want to offer monetary incentives with broad appeal.
Choose a free-to-use platform to keep your costs down, and check the cardholder agreement to verify whether or not the open-loop gift cards you choose work internationally. For an even better recipient experience, you can also opt for digital delivery through email or text message.
Streamline your reward programs with Tremendous
Tremendous helps you manage gift card programs without the hassle. Send 2,000+ reward options to people in 230+ countries, including Visa prepaid cards.
Ready to simplify your reward program? See how Tremendous makes incentive distribution easy while keeping recipients happy. Book a demo or sign up now.
