Processing of Closed Loop Gift Cards
The third-party-based approach
Closed loop gift card processing can be arranged by a payment gateway or a merchant in one of several ways. The “closed loop” can involve a third-party gift card issuer, who issues the cards and handles all the acquiring issues (although closed loop gift cards, issued by a third party, can be white-labeled by the merchant). The third-party-based approach does not require as much efforts from the merchant as implementation of in-house logic for processing of gift cards. I.e., it is much easier for a merchant or a payment gateway simply to integrate with a third-party issuer/processor, than to implement the respective functionality. However, if a merchant decides that the closed loop does not need to involve the third party and card issuance can be implemented within its own system (or at the level of the payment gateway), the merchant can enjoy some extra benefits. A particular advantage of in-house gift card issuance implementation is that the issuer gets all the revenues from the unclaimed funds, which remain unclaimed on the payment cards.
Another advantage of closed loop gift cards for a merchant is that the merchant does not have to pay any merchant fees (while cardholders are still free to spend the money, remaining on their gift cards, just like in case of any other payment cards).
For more information on closed loop gift card processing, check out the respective article on #Paylosophy.