Closed-loop payment programmes:

A closed-loop payment programme is a payment system where funds can only be spent within a defined and controlled environment. This may include a specific merchant or group of approved merchants, a restricted range of goods or services, or a particular programme or location. Unlike general-purpose payment cards, closed-loop payments are designed for purpose-specific use rather than unrestricted spending.

Closed-loop payment programmes are widely used across events, retail, employee benefits, aid distribution and public-sector schemes. Yet the term itself is often poorly explained, leading to confusion about how these programmes work, how they differ from traditional card payments, and where they fit within the regulatory landscape.

This guide explains closed-loop payment programmes in clear, practical terms. It covers how they work, why organisations use them, and how they are defined under European payments regulation, without relying on legal jargon or marketing language.

What is a closed-loop payment programme?

A closed-loop payment programme is a payment system where funds can only be spent within a defined and controlled environment. They allow companies to embed payment functions without obtaining a full Payment Institution (PI) or Electronic-Money Institution (EMI) license.

Unlike general-purpose payment cards, which can be used almost anywhere, closed-loop payments are restricted in one or more ways. This might mean the payment instrument can only be used:

• With a specific merchant or group of approved merchants
• For a limited range of goods or services
• Within a particular programme, location, or country.

Because acceptance is controlled, the organisation running the programme has much greater oversight of how funds are used. In simple terms, closed-loop payments are designed for purpose-led spending, rather than open, unrestricted use.

How closed-loop payment programmes work in practice

In a closed-loop payment programme, a single provider manages the payment ecosystem end to end. This typically includes issuing the payment instrument, defining where and how it can be used, processing transactions within a controlled network, and settling funds with participating merchants. Because transactions remain within the same system, spending rules and reporting can be applied consistently.

This structure allows organisations to introduce:

• Merchant or category restrictions
• Spending limits or rules
• Faster settlement and clearer reporting
• Greater visibility over how funds are allocated and used

In practice, this structure also gives organisations clear visibility over how funds move through the programme. Administrative platforms, such as the management portal provided by DiPocket, allow programme owners to monitor transactions, apply or adjust spending rules, and review detailed reporting across cards, users and merchants. This level of insight supports oversight, reconciliation and decision-making throughout the life of the programme.

Closed-loop vs open-loop payments: which do I need?

The choice between closed-loop and open-loop payments lies in acceptance and control.

How closed-loop payment programmes are defined under PSD2

From a regulatory perspective, closed-loop payment programmes are commonly understood within the framework of the EU’s second Payment Services Directive (PSD2).

Under PSD2, certain payment instruments are recognised as having limited acceptance or limited purpose. These include instruments that can only be used:

• Within a defined network of merchants
• For a restricted range of goods or services
• Or within a single country for specific social or public-sector purposes

Because these programmes are restricted by design, they allow organisations to introduce controls that would not be possible with general-purpose payment cards. This includes limiting where funds can be spent, how they are used, and how activity is monitored.

Organisations that choose closed-loop payment systems within these specific exclusions to the PSD2 rules gain several key advantages: they can accelerate their launch times, avoid extensive capital and reporting obligations, and optimise costs through eliminating some fees.

For users (cardholders or recipients) the impact is:

• They can spend funds only where the programme allows
• Payments are simpler and more predictable
• There is less ambiguity about what the funds are for
• The payment experience is focused on a specific purpose, not open-ended choice.

In many contexts such as receipt of benefits or aid, or the participation in events, the practical limits on payments are reassuring rather than restrictive.

For organisations delivering payments, choosing a closed-loop programme means the organisation can align the payment system directly with its operational or social objectives:

• Funds cannot “leak” into unintended uses
• Spending rules are enforceable, not advisory
• Reporting reflects real programme activity, not general consumer spend
• Compliance and oversight are easier to maintain.

Common use cases for closed-loop payment programmes

Closed-loop payment programmes are commonly used where control and traceability matter. Typical applications include fuel cards, cashless events, retail gift cards, employee benefits, aid distribution and public-sector schemes. In each case, the defining feature is that spending is restricted by design rather than left open to unrestricted use.

Security and fraud considerations in closed-loop programmes

Security is often a deciding factor when organisations compare closed-loop and open-loop payments.

Because closed-loop programmes operate within a defined ecosystem, they can reduce certain risks by design:

• Cards or accounts cannot be used outside approved environments
• Transaction patterns are easier to monitor
• Unauthorised merchant usage is prevented.

This does not remove the need for robust security controls, but it does allow organisations to align payment security more closely with the specific risks of their programme.

Data, reporting and visibility

One of the most practical advantages of closed-loop payment programmes is the level of insight they provide.

Because all transactions take place within the same ecosystem, organisations can access:

• Clear reporting on where funds are spent
• Real-time or near-real-time transaction visibility
• Easier reconciliation and audit trails.

For public-sector bodies, NGOs and regulated organisations, this visibility is often as important as the payment function itself.

Branded cards for closed-loop payments

Whether choosing a closed or open loop payment system, organisations have access to all the benefits of branded payment cards. DiPocket’s white-label payment cards:

• Can be designed to carry an organisation’s own branding (rather than that of the issuing provider such as Barclaycard) and the user experience
• Can be either physical cards, or virtual cards usable through digital devices for convenience
• Are backed by a licensed financial institution that manages compliance, technology and settlement – the secure infrastructure that makes the funds disbursement work.

White-label cards turn a purely functional process into a branded experience. Every card carries the organisation’s identity and reinforces trust each time it is used. This combination of speed, compliance and brand visibility is why white-label cards are becoming a preferred choice for modern funds disbursement, whether for closed-loop or standard payments.

Closed-loop payment programmes and DiPocket

Closed-loop payment programmes play a vital role in payments where purpose, control, and transparency matter as much as convenience. By limiting where and how funds can be used, these programmes enable organisations to deliver payments that align closely with their operational, regulatory or social objectives.

Understanding how they work helps organisations choose the right approach for their needs. Whether used for events, benefits, retail ecosystems, or aid distribution, closed-loop models offer a structured alternative to open, unrestricted payments.

Frequently asked questions about closed-loop payment programmes

What is a closed-loop payment programme?

A closed-loop payment programme is a payment system where funds can only be spent within a defined network, for specific purposes, or within a controlled environment.

How are closed-loop payments different from debit or credit cards?

Unlike general-purpose cards, closed-loop payments are restricted by design and cannot be used everywhere.

Are closed-loop payment programmes regulated?

Yes. In Europe, they are typically understood within PSD2 as limited network or limited purpose instruments.

Are closed-loop payments secure?

They can reduce certain risks by limiting where and how payments can be made, alongside standard security controls.

Can closed-loop programmes be used internationally?

This depends on how the programme is structured. Some are limited to a single country, while others operate across multiple regions with defined controls.