Open-System and Closed-System Prepaid Cards Compared

There are three types of prepaid cards used by merchants today. They are the open system, semi-closed system, and closed system. Knowing the difference between the systems will help in deciding which prepaid cards to purchase. 

Open Systems

Open system cards are those that are issued by a company such as Visa or Mastercard and accepted at any store in any location where the network is accepted. These are not actual credit cards because no line of credit is issued to the consumer, but the consumer controls the amount of money on the card because the money is prepaid onto the card. There are limits to the amount of money that can be on the card at any time, but these limits are high enough to accommodate most consumers and most purchases. 

These cards are widely marketed toward people who have no credit or bad credit, or to those who do not have a traditional bank account because they work much like a debit card without the bank account. Extensive legal regulation surrounds these cards because identifying information is required to open the account. This information includes the customer name, social security number, address, and phone number. Though no credit check will be conducted this identifying information is required as a result of the USA Patriot Act. 

There is a virtual prepaid card issued for “customer not present” transactions only. Since there is no card issued, the card can only be used online for purchases and cannot be used in person where an actual card must be presented. 

Payroll cards used to pay employees are also considered open system. Electronic Benefit cards issued by the state for food stamps and other federal benefits are also open system cards because they are accepted anywhere in the network and contain identifying information. 

Semi Closed Systems

Semi closed system cards are cards that can be used at several merchants within the same geographic area. These cards are issued by a third party rather than the store where the cards are accepted, and are generally used for mall gift cards because all stores in the mall will accept the card. 

Closed Systems

Closed system cards are those that can only be used at one store. These cards are generally used as gift certificates because they do not expire and do not collect any consumer information. Typically speaking, the cards can be reloaded and reused multiple times as long as a balance remains on the card. 

Chances are most consumers have come in contact with all of these card types. If anyone has used a single store gift card, they have used a closed system card. Anyone who has used a multiple store gift card has used a semi closed. Anyone who has used a prepaid credit card or credit card network branded gift card has used an open system card. 

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