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The Benefits of Using Closed Loop Cards for Customer Appeasement

The Benefits of Using Closed Loop Cards for Customer Appeasement

81% of organizations say that customer experience is a key factor that differentiates a company from its competitors. Their customers tend to agree: 86% of buyers are willing to pay more for an excellent customer experience.

Poor customer experiences can damage a brand’s reputation and deter existing customers from coming back. That’s why having a plan in place to deal with potentially unsatisfied customers is vital.

What practices can businesses implement to mitigate negative sentiment when dealing with unhappy customers?

One solution involves using closed loop gift cards to assist with customer appeasement.

The Difference Between Open Loop vs Closed Loop Gift Cards

What is a closed loop gift card? Closed loop cards are defined as gift cards or other payment cards that can only be used from one specific organization. The business itself usually issues the card with the help of a backing agent like Visa or Mastercard.

Some closed loop card examples include transit system cards, government benefit cards, rebate cards, and gift cards.

How do closed loop gift cards work? Closed loop cards can function either as debit cards with a balance linked to an account or pre-funded, or as credit cards with credit limits maintained by the issuing entity. A closed loop card can be configured for several different funding methods, including:

  • Being pre-loaded with a one-time balance
  • Having the ability to be re-funded
  • Being linked to a customer’s bank account via ACH transfer

A closed loop card payment system tends to be simpler and more secure than an open loop system. Because closed loop cards can only be used at a single location, payments are contained internally and do not rely on outside electronic transfers.

Closed loop gift cards provide an easy and cost-effective way for businesses of all sizes to connect with both new and existing customers.

Open loop cards, by contrast, can be used at many locations. Cards that fall into this category include traditional credit and debit cards, gift cards, EBT cards, and almost all other types of electronic payment.

Open loop cards are more complex and potentially less secure, but also more adaptable for a broader variety of use cases. They can be issued by major financial institutions like Visa, Discover, and MasterCard. Open loop payment systems can involve mobile payments, point-of-sale (PoS) transactions, and ecommerce purchases.

Closed Loop Gift Cards and Customer Appeasement

A 2018 global payment report by WorldPay noted that prepaid cards account for 2% of eCommerce and 1% of all point-of-sale spending worldwide. That may not sound like much, but the US Department of Commerce estimated total global retail sales to be over $26 trillion as of 2019. In other words, about $260 billion of PoS sales and $520 billion of online sales consist of prepaid cards.

Clearly, closed loop cards play and important role in the economy. One of the primary reasons for this could have something to do with how this form of payment can be used to help with customer appeasement.

At one point or another, all businesses will encounter an unhappy customer or two. Addressing a sub-par customer experience when it arises is a necessity, as  up to 95% of people who have a negative experience will share it with others. On top of that, it can take as many as 5 positive experiences to eliminate the effects of a single negative experience.   

It’s not hard to see how failing to appease even one unhappy customer can have ripple effects that damage a business’s sales and reputation over time.

Closed loop cards can be a major asset when it comes to dealing with unhappy customers. In addition to providing a straightforward way of remedying a poor customer experience, they also allow companies to keep money within their business. Instead of directly refunding a purchase, providing a closed loop gift card makes sure that a customer uses their refund on another company product or service.

And it doesn’t have to stop at refunds, either. Research has shown that receiving a discount or gift card in response to a company fixing a mistake can make 98% of customers satisfied and convince them to keep doing business with the organization. This can also increase the likelihood that customers leave positive reviews.

Maintaining existing customer relationships tends to be more helpful to a company’s bottom line than attempts at attracting new customers. Rectifying errors and providing some form of appeasement can be an important asset in achieving customer loyalty.

A Simple Yet Effective Customer Loyalty Tool

Most of us are familiar with open loop cards and use them almost every day. Closed loop cards tend to be more of a novelty, reserved for specific use cases like bus passes, university credits spent on campus, or gift cards sent to a loved one. 

The use case of closed loop gift cards for customer appeasement can be easy to overlook as a business owner. But doing so imperils a company’s brand, reputation, and existing customer relationships. Want to learn more about leveraging closed loop gift cards for your business? Request a demo