Breaking boundaries with closed loop cashless systems

From our experience, most Businesses tend to stick to open loop payments for the sheer convenience of how easy it is to use. But Businesses are always looking looking to gain a better understanding of how they can improve their services and get more from every customer interaction; be it in terms of cost savings or additional ancillary benefits to augment your customer experience. The options of getting data and learning from the likes of VISA or Mastercard are fairly limited in the open loop payments space. So let's dive into how closed loop cashless solutions can help you be more profitable and provide a better customer experience at the same time.

Significant cost savings in Acquirer fees

Understanding and navigating through the credit card payments processing network can be daunting however the bottomline from a Business's perspective is, most Businesses have the opportunity to save on acquirer fees by switching to a closed loop cashless system. A Business processing a credit card transaction (classified as open loop payment method) pays a per transaction fee to the issuer bank. The agreement for this fee generally varies between merchant services providers. For the sake of illustration, let’s consider a typical credit card transaction incurs a cost to Business of 2% of transaction value plus a $0.20 transaction fee.

So 1 transaction of $100 results in 2% of $100 + $0.20 = $2.20 in acquirer fees to the Merchant Service Provider. So the Business receives $97.80 for every $100 transaction. What's important to note is the static $0.20 charge that stays the same regardless of the transaction size. So as a Business, you end up paying $0.20 for every transaction, be it $1 or $1000. Thus it is in your best interest to encourage your customers to make large transactions if you are looking to save your cost of acquirer fees. However this may not be feasible for Businesses that have customers make small everyday transactions (for example: coffee shops, retail stores, quick serve restaurants etc)

By switching to a closed loop cashless system, your Businesses can provide a digital wallet to your customers, which in turn to allows them to top up larger amounts to your Business. The benefit here is that you pay a one time acquirer fee for the top up and every transaction made using your wallet results in $0 in acquirer fee. So for a coffee shop, a one time top up to a closed loop cashless wallet $50 would result in a acquirer fee of $1.2 compared to $6 for a total of $2 x 25 transactions for an espresso with an open loop credit card only system. 

A case study on closed loop cashless at the Central Bank of Ireland

Besides the obvious financial benefits, closed loop cashless payments gives Businesses a host of benefits that your typical open loop credit card can just never provide.

75% Faster payments on an average compared to open loop payments

A typical transaction put through open loop networks is convoluted and passes through several loops from start to end. A consumer swipes/taps their card at the Merchant's point of sale to initiate a payment. The Merchant collects the payment information and sends it to the Merchant's bank (aka Acquirer bank). The Acquirer bank sends the consumers' payment information to the credit card network (most common ones are Visa and Mastercard). After receiving the payment information, the credit card network passes sends the information to the Consumers' Bank who then checks if the Consumer has sufficient funds to complete the transaction. If the Consumer has sufficient funds, this message is then routed back to the credit card network, the Merchant's bank and finally back to the Merchant's point of sale where the transaction is complete.

Compare this to a typical Closed loop transaction where a consumer taps their cashless card on an HID reader at the point of sale. The point of sale sends a request to the Cashless Payments service provider to check if the consumer has sufficient balance. The service provider authenticates and validates the transaction and send the appropriate message back to the point of sale. This payment doesn't go through convoluted loops and the transaction takes under a second to complete. Thus on an average a closed loop cashless transaction is 75% faster than an open loop payment. Use this figure as a conservative benchmark estimate on how much this translates in more customers served per hour for your Business.

Customize the way you can accept payments

Closed loop cashless systems and IoT go hand in hand. The beauty of such a system is that you can control the way you accept payments. A simple example is turning employee staff cards into a payment vehicle. In a corporate Business with access control systems in place, employees tap their staff cards on HID readers to enter secure facilities. This staff card is with employees at all times. So once tokenized, the staff cards can be used to accept payments in cafeterias within the office's premises by simply tapping onto an HID reader connected directly to the POS. From our experiences with working with corporate clients, this transaction is known to be 70% faster and helps the queues move significantly faster.

Similarly, any object can be made into a cashless payments vehicle. Key fobs, wristbands, coffee cups, mobile phones etc are some of the more commonly used cashless objects. Watch the video below to learn how LoyLap tokenized payments and integrated directly into the ecosystem at Bannatyne Health and Fitness Clubs.


Build layers of functionality with open API's and integrations

A cloud based service provider could potentially open doors for multiple integrations depending on their technical infrastructure. Businesses can reward their customers and keep them coming back with an integrated loyalty rewards program for every cashless transaction. By incorporating either credit back or stamp loyalty or both, Businesses can attract, retain, understand and retain their customers and keep them happy. Ancillary services such as pre-ordering or online ordering can be easily integrated into a Business' payment ecosystem. A service like this allows Businesses to service their customer better, prepare for peak hours, thus reducing queues and eventually improving throughput during peak hours. In this vein, Businesses can offer self checkout kiosk options in order to bust queues and accept more orders.

Also a provider with an open API can help Businesses create custom solutions such as integrating with a third party service.

Learn more about your customers with data and insights

With every transaction saved into the backend, closed loop cashless enables Businesses to watch their data in action. With real time reporting, it is possible to monitor performance at all times. Businesses can see metrics and KPI's that they set themselves. End of reconciliation and reporting can be made automatic and pain-free.  Every system worth its salt will provide a administrator management tool that allows Businesses to change system settings, customize features and appearance, set discount rates, segment customers to different groups, send targeted promotions etc.

With data and insights Businesses can know more about their customers and create value at every point of their journey.

Read more on how LoyLap can help you set up a closed loop cashless environment for your Business