Which statement correctly describes a closed-loop payment example?

Which statement correctly describes a closed-loop payment example?

• A. An online merchant using a card network to process payments
• B. A prepaid transit card that can only be used within its own network
• C. A standard credit card issued by a bank
• D. A mobile wallet that processes payments via card networks

Answer: (B)

Closed-loop payments stay within a single issuer’s network or a restricted set of places, with funds tied to that system and not routed through broad card networks. A prepaid transit card that can only be used within its own network fits this, because it operates entirely inside that closed system and isn’t accepted everywhere. In contrast, using a card network to process payments, a standard bank-issued credit card, or a mobile wallet that routes payments via card networks all rely on wide, external networks and are open-loop. So the transit card example best illustrates the closed-loop concept.

Closed-loop payments stay within a single issuer’s network or a restricted set of places, with funds tied to that system and not routed through broad card networks. A prepaid transit card that can only be used within its own network fits this, because it operates entirely inside that closed system and isn’t accepted everywhere. In contrast, using a card network to process payments, a standard bank-issued credit card, or a mobile wallet that routes payments via card networks all rely on wide, external networks and are open-loop. So the transit card example best illustrates the closed-loop concept.