What is a closed loop eWallet

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08 Aug 2022

What is a closed loop eWallet

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A closed wallet system, also known as a closed-loop payment system, is a digital platform where transactions are limited to a specific merchant or a defined set of merchants within an enclosed ecosystem. These wallets are typically offered by companies or organizations to their customers for use within their own platform or network. Unlike open-loop systems, closed wallets don't allow for transactions with other merchants. 

Here's a more detailed explanation:

Key Characteristics:

Restricted Use:
Closed wallets are designed for use within a specific environment, such as a company's website, mobile app, or physical store. 

Issuer-Specific:
They are typically issued by the company or organization that controls the ecosystem. 

No External Transactions:
Users cannot use these wallets to make payments to other businesses or transfer funds to other accounts. 

Loyalty and Rewards Integration:
Closed wallets can be integrated with loyalty programs and reward systems, encouraging repeat purchases and customer engagement within the issuer's ecosystem. 

Examples:
Examples include Starbucks' mobile app for purchases within their stores, Disney MagicBands for transactions within Disney parks, and store-specific apps for making purchases. 

Advantages:

Assured Payment From Customer:
Charging an eWallet is effectively prepaying for a future purchase and therefore here can be no surprise or dispute between the customer and the merchant about the amount of the bill - the customer can order and buy only to the extent of the money that he has deposited in the eWallet

Seamless Transactions:
Closed wallets can facilitate quick and seamless transactions within the specific environment they operate in. 

Enhanced Security:
They can offer a more secure payment experience as they are limited to a controlled environment, reducing the risk of fraud. 

Targeted Marketing:
Issuers can tailor offers and promotions to users based on their spending patterns within the closed-loop system. 

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