Anyone who spends time in payments will hear terms like “closed loop,” “open loop,” “restricted open loop,” and “semi-closed loop.” These terms describe how a card can be used. They say nothing about whether a card is legal.
What the terms mean
Closed loop: the card only works at the merchant that issued it.
Open loop: the card works almost anywhere, like a prepaid Visa or Mastercard.
Restricted open loop (or semi-closed loop): the card works within a defined network, such as a shopping centre’s set of retailers.
What the terms don’t mean
These labels describe acceptance, not legal status. Under Germany’s Payment Services Supervision Act (ZAG), the question that matters is whether a card counts as e-money: electronically stored monetary value, issued on payment, accepted by parties other than the issuer. Third-party acceptance is the key test, and it has nothing to do with which “loop” label a marketer might use.
The regulatory issue
If a prepaid card qualifies as e-money, it cannot be issued without authorisation, unless it falls under an exception. The relevant exceptions here are the “limited network” and “limited range of goods and services” exclusions. Both require that the card’s use stay confined to a specific location or a small group of service providers.
BaFin, Germany’s financial regulator, sets out the requirements for these exclusions in its Information Sheet on the Payment Services Supervision Act.
The takeaway
“Closed loop” and “open loop” are useful shorthand for describing where a card works. They are not legal categories. Whether a card needs authorisation depends on the ZAG’s e-money test and the limited network and limited range exclusions, not on which label it’s been given.
