Author Question: In one or two paragraphs, explain the difference between an open loop and a closed loop payment card ... (Read 79 times)

Garrulous

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In one or two paragraphs, explain the difference between an open loop and a closed loop payment card processing system.

Question 2

Write a paragraph in which you identify the types of companies that might offer a store-branded charge card.



Andromeda18

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Answer to Question 1

In some payment card systems, the card issuer pays the merchants that accept the card directly and does not use an intermediary, such as a bank or clearinghouse system. These types of arrangements are called closed loop systems because no other institution is involved in the transaction. American Express and Discover Card are examples of closed loop systems.
Open loop systems add additional payment processing intermediaries to the structure of a closed loop system. Suppose an Internet shopper uses a Visa card issued by the First Bank of Woodland to purchase an item from Web Wonders, whose bank account is at the Hackensack Commerce Bank. The banking system includes one or more intermediaries (banks or other types of payment processing companies) that coordinate the transfer of funds from the First Bank of Woodland to the Hackensack Commerce Bank. Whenever additional parties, such as the intermediaries in this example, are included in payment card transaction processing, the system is called an open loop system.

Answer to Question 2

In the United States, many retailers, such as department stores and oil companies that own gas stations, issue their own charge cards.
Cards issued by a specific retailer, such as Exxon fuel stations or Kohls department store, are sometimes called store charge cards or store branded cards.



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