Loyalty glossary · 9. Program models (20)
Open Loop
Open loop is a loyalty programme model where earning and redemption are not confined to a single operator. Members typically earn through a payment network or co-branded card and spend value with external merchants that accept that network.
Open loop replaces a closed currency with network money. Members earn through a payment card and redeem with any merchant that accepts the card network. This removes the single biggest barrier to redemption, but it also removes the reason to return to the issuing brand. Accrual becomes a function of card spend, not of loyalty to one operator.
The economics are transparent and unforgiving. An open loop programme that awards 2 points per dollar and lets members redeem each point for 1 cent is paying a 2 percent rebate on every purchase. A purchase of 100 dollars therefore costs the operator 2 dollars, regardless of whether the member ever buys from the operator again. Few closed loop programmes face that arithmetic this directly.
Open loop also changes how an active member rate should be read. A member can appear highly active in network spend while never transacting with the brand that issued the card. The operator then reports a healthy active member rate built on purchases that have nothing to do with the programme itself. That figure flatters the model and tells the operator little about its own customer base.
Activity-based qualification breaks down under open loop. In a closed programme, tier thresholds signal a member's commitment to that brand. In an open loop scheme, a member can reach top tier by paying a landlord or a tax bill through the card, none of which creates any brand preference. The qualification becomes a measure of card volume, not of loyalty.
Open loop is a payment product with loyalty features, not a loyalty strategy. It buys distribution and immediate value, but it forfeits the proprietary data and the repeated interaction that closed loop programmes exist to create. A programme that chooses open loop for breadth should stop calling its points a loyalty currency. They are rebates on a card.