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For an organization looking to provide its commercial customers with a payments vehicle, an open loop payment program is typically the default solution. However, there are five types of program requirements that may lead a program sponsor to a closed-loop alternative.
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Closed-Loop Card Programs as a Closed-Loop Card Programs as a Complement to Open-LoopComplement to Open-Loop
A Little About Multi ServiceA Little About Multi Service A closed-loop billing and payment service provider for more than 30 years, we’ve processed transactions for program sponsors such as:
Copyright CPI 2011
Quick HousekeepingQuick Housekeeping
To make sure we are all on the same page:
Open-loop: A general purpose card carrying the Visa, MasterCard, Discover or American Express logo that can be used anywhere those cards are accepted.
Closed-loop: A card or account that can be used at a select store or group of stores.
Program sponsor: A company or organization that partners with an open- or closed-loop card issuer to provide its business customers with a commercial payments vehicle.
Copyright CPI 2011
The Commercial Card MarketThe Commercial Card Market
General purpose purchase, travel and fleet cards are widely adopted by accountholders:
• Streamline purchasing processes
• Obtain oversight of employee transactions
• Achieve cost savings and earn rewards for purchases made.
Copyright CPI 2011
For Program Sponsor:• Cost effective / efficient implementation• Customer loyalty• Incremental sales• Sales insight• Marketing opportunity• Guaranteed payment• Minimal credit risk
For Accountholder:• Cash flow management• Streamlined purchasing via e-payment vehicle• Streamlined AP processing• Universal rewards
The Inherent Benefits to Open-LoopThe Inherent Benefits to Open-Loop
Copyright CPI 2011
Shared BenefitsShared Benefits
For Program Sponsor:Network control
Functional customizationCustomer captivityFee management
For Accountholder:Minimal fraud, waste, misuse
Rewards
OpenOpenCloseClosedd
Copyright CPI 2011
Closed-loop programs can be used to efficiently expand or focus a card program.
Network ControlNetwork Control
Copyright CPI 2011
Closed-loop programs can be used to efficiently expand or focus a card program.
Network ControlNetwork Control
Copyright CPI 2011
Network ControlNetwork ControlClosed-loop programs can be used to efficiently expand or focus a card program.
The Up Side:
• Control over merchant qualifications.
• The ability to turn a merchant on / off at will.
• One program no matter the geographic reach.
The Down Side:
• Limited acceptance to specified merchants.
• Time / cost to implement merchant network and card acceptance.
Copyright CPI 2011
Functional CustomizationFunctional Customization Closed-loop programs operate on their own “rails,” and therefore, allow for
functional customization.
Consistent Level III data submission
Specialized data capture not currently supported by Interchange
Price application after the point of sale, but prior to billing, or even at the point of sale.
Invoice verifications
Specialized purchase controls
Specialized billings
Specialized authorization requirements
Copyright CPI 2011
Functional CustomizationFunctional Customization Closed-loop programs operate on their own “rails,” and therefore, allow for
functional customization.
The Up Side:
• Specific to you, your merchants and customers.
• Additional benefits are dependent upon the type of functionality initiated.
The Down Side:
• Time / cost to implement new “rail” system.
• Impact on merchants’ business-as-usual.
Copyright CPI 2011
Customer CaptivityCustomer Captivity 71% of fleets in the trucking industry say that they are more likely to buy
from vendors that have implemented a closed-loop program.
A dedicated line of credit means that a competitors’ sales do not have an effect on the customers’ purchase opportunity with the program sponsor.
Streamline billing and payments for customers while maintaining internal operations.
Copyright CPI 2011
Customer CaptivityCustomer Captivity 71% of fleets in the trucking industry say that they are more likely to buy
from vendors that have implemented a closed-loop program.
The Up Side:
• Revenue opportunity.
• Additional control over portfolio.
• Additional “touch points” with customers.
• Control over messaging.
• Control over internal operations.
The Down Side:
• Inability to obtain transaction data for all customer purchases.
• Additional account for accountholder / merchant to manage.
Copyright CPI 2011
Fee ManagementFee Management 71% of merchants cite “Fees too high” as a reason to resist or not accept cards1.
First Annapolis and NAPCP. End-user Survey on Supplier Acceptance. Report of Survey Results. Nov / Dec 2009.
Copyright CPI 2011
Fee ManagementFee Management 71% of merchants cite “Fees too high” as a reason to resist or not accept cards1.
The Up Side:
• Long-term cost savings. The Down Side:
• Upfront cost and opportunity cost in time to launch.
Copyright CPI 2011
Fraud, Waste and MisuseFraud, Waste and Misuse
Be mindful of portfolios with:
• High employee turnover
• High concentration of not-for-profit or government clientele
• A need for repeated, high-value transactions
10% of organizations report that corporate / commercial cards (i.e. purchase cards, T&E cards) were the payment method most responsible for financial losses sustained by their organizations resulting from payments fraud2.
2010 AFP Payments Fraud and Control Survey. Report of Survey Results.
Copyright CPI 2011
Fraud, Waste and MisuseFraud, Waste and Misuse 10% of organizations report that corporate / commercial cards (i.e. purchase cards,
T&E cards) were the payment method most responsible for financial losses sustained by their organizations resulting from payments fraud2.
The Up Side:
• Limited risk exposure. The Down Side:
• Limited acceptance for the cardholders.
Copyright CPI 2011
SummarySummary Closed-loop networks can serve as an alternative or complementary solution, when an open-loop program is deemed:
• impossible to implement
• overly simple for program sponsor or accountholder requirements
• too broad for purchasing requirements
• too expensive from a long-term Interchange cost perspective
• too risky for accountholders