Open vs. Closed Loop Mobile Payments

In the days of technical wonders, payment systems are being revamped as well. Both open-loop and closed-loop payment schemes are in rampant use nowadays. Both techniques find favour with users though, as they both come with their own set of advantages and disadvantages. Given the split nature of the favouritism behind either, let us have a look at the payment systems in detail.

Open Loop Payment System:

This system makes use of an open mobile wallet. This allows the users to use it from anywhere they want, as long as they use the commodity like a centralized digital wallet. Contrary to closed mobile wallets, open payment systems are directly connected to a personal account like a debit card for instance. This allows users to pay as long as they are able sustain the available balance, unlike the closed mobile wallet counterparts, which need to be fed currency which runs out and needs to be filled up by the user again.

Open loop payment is favored more by users because of the openness it allows. The open loop payment wallets come with ample scale functionality. The convenience quotient greatly factors into the success of open loop payment wallets. End users value a tool that abides by the principle of “one size fits all”. Therefore, end-users obviously veer towards an application that is compatible with something as crucial and standard as paying money, anywhere and everywhere, is bound to find takers!

On the other hand though, from a merchant or seller or vendor perspective, the open mobile payment procedure is not doing anything new. Other than the fact that it makes it easier for clients to use the service and pay for it, there are no perks for vendors. On the contrary, they risk having to share client information with a 3rd party payment gateway. This gives merchants incentive to not go crazy about the flexibility offered by open loop systems!

Closed Loop Payment System:

Closed loop payment processing finds wider acceptance from business brands. This is because apart from benefiting the user, it also benefits the vendor. There are several advantages that contribute to why vendors prefer closed loop mobile payments.

  • Closed loop systems have the ability to capture big data on customer transactions. Big data like purchasing habits, popular searches, buying practices, etc., can be ascertained from this, which helps them prepare marketing campaigns.
  • Payment processing is handled internally, lowering costs
  • Helps prepare loyalty programs for the customers, based on the big data collected on them.

Customers benefit too from closed loop mobile systems. Facilities such as loyalty incentives, faster checkouts and other perks offered to exclusive, closed loop wallet owners have won over consumers too.

However, closed loop mobile payments are brand specific. Customers cannot use closed loop wallets to pay for other services. So if everyone adopted this payment method, customers would need a different app to pay each vendor.

Given the fact that convenience is the mother of all innovation, customers prefer a payment system which does not defer from having a mobile payment option.

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