An open-loop card is a payment card that can be used at any location that accepts cards authorized by the payment card’s network. An open-loop card bears the logo of the authorizing card network. Visa, Mastercard, American Express, and Discover are examples of credit card networks.1
Learn how to identify an open-loop card and how open-loop cards differ from closed-loop cards.
Definition and Examples of Open-Loop Cards
An open-loop card is a card that is not limited to use at one specific retailer but can be used at any retailer that accepts cards on the presented card’s network.
Alternate name: Multipurpose card
In some payment card contexts, the term “open loop” is used to describe a kind of card network that does not issue cards or establish cardholder rates and fees directly, but instead partners with financial institutions to perform these tasks. In these contexts, Visa and Mastercard would be considered “open loop.” Meanwhile American Express and Discover, both of which serve as an issuing bank and the payment network, would be considered “closed loop.”2
The Disney Premier Visa, which is issued by Chase Bank, is on the Visa card network. Although this card is co-branded with Disney, it can be used at any location that accepts Visa cards and is therefore an open-loop card.
A Disney gift card, on the other hand, can only be used to purchase items at Disney locations. Cards that can only be used at certain merchants are known as closed-loop cards.
How Do Open-Loop Cards Work?
Open-loop cards are issued by a bank in partnership with a card network.
This works to cardholders’ benefits since when a retailer contracts with a card network, the retailer generally agrees to accept all cards of the same type on that network as part of the network’s “honor all cards” policy.3
If a cardholder sees a card network’s logo on their card, they can be sure their card is an open-loop card and will be accepted by all retailers that accept cards on that card’s network.
Types of Open-Loop Cards
There are several different kinds of open-loop cards. In fact, when you think of a typical credit card or debit card, chances are you have in mind an open-loop card. While not as common, gift cards can be open loop as well.
A credit card is a type of payment card that allows the cardholders to essentially borrow money from the card issuer—typically a bank—up to a certain credit limit to cover purchases made on the card.
At the end of each billing cycle, the cardholder receives a statement showing the balance on their card. The cardholder can then choose to pay off the balance to avoid interest charges or can elect to make low, minimum monthly payments to keep the card current while accruing interest on the rest of the balance.
Some credit cards are known as charge cards. These cards require the cardholder to pay the balance in full every month.
Most credit cards and charge cards are authorized by a card network and are therefore open-loop cards that can be used wherever its network’s cards are accepted.
A debit card is a type of payment card that allows cardholders to draw money directly from their checking account. Many people find using a debit card more convenient than writing a check and more secure than carrying large amounts of cash.
A debit card can also be used to withdraw cash from the bank or an ATM.
Some debit cards are prepaid cards, meaning that rather than drawing from an active bank account balance, they are preloaded with funds that are depleted as the card is used to make purchases or withdraw cash.
Debit cards issued by major banks are generally on the Visa or Mastercard networks and are therefore open loop.
A gift card is a type of prepaid card. Unlike prepaid debit cards, however, gift card balances can only be spent; they cannot be used to withdraw cash.
Gift cards that can only be used at a particular merchant, such as a Walmart gift card, are closed loop, but card-network gift cards such as a Visa gift card or an American Express gift card are open loop.
Open-Loop Cards vs. Closed-Loop Cards
While open-loop cards allow cardholders to make purchases anywhere, closed-loop cards are only accepted by a particular merchant or merchants.
Most store credit cards, such as the Target RedCard, can only be used at the issuing store or its website and are therefore closed-loop cards.
Not all store-branded cards are closed loop, however; for example, the Gap Visa Card is open loop because it is accepted at all locations that accept cards on the Visa card network, but provides more rewards when used at Gap brands.
Benefits of Open-Loop Cards
The primary benefit of open-loop cards is their versatility; they can be used at millions of retailers worldwide.
Criticism of Open-Loop Cards
One criticism of open-loop cards—and in particular open-loop credit cards—is that they can allow cardholders to make purchases they cannot afford.
If a cardholder has a Visa credit card, they can use this card to make purchases (up to their credit limit) at the millions of retailers worldwide that accept Visa credit cards regardless of whether the cardholder actually has enough money in the bank to cover these purchases.
Of course, if a cardholder routinely makes purchases on a card they cannot cover at the end of their billing cycle, they will accrue credit card debt.
The average credit card balance per person in the United States was $5,313 in 2020, according to credit bureau Experian.
Since the average credit card interest rate is 20.25%, according to our estimate, carrying a $5,000 balance on a typical credit card could result in interest charges of $1,000 or more over the course of a year.
How To Get an Open-Loop Card
The process for getting an open-loop card depends on the type of open-loop card you are interested in.
Obtaining an open-loop credit card can be as simple as completing an online application. First, however, make sure the credit card you are applying for is, in fact, an open-loop card; the easiest way to verify a credit card is open loop is to make sure a card network’s logo appears on the card itself.
You can get an open-loop debit card by opening up a checking account at a traditional bank or by using a neobank like Chime. You should receive your debit card in the mail shortly after opening your account.
Open-loop gift cards such as a Visa gift card can be purchased at major retailers, grocery stores, and online. Keep in mind that unlike closed-loop gift cards such as retail gift cards, open-loop gift cards often come with a “purchase fee” or “activation fee” that diminishes the value of the gift card.