What does a Closed Loop system refer to?

A Closed Loop system specifically refers to a prepaid card system that is restricted to specific merchants. This means that the funds loaded onto these prepaid cards can only be used within the defined network of participating merchants or service providers. Typically, these systems are designed to enhance customer loyalty and encourage spending at particular businesses, creating an ecosystem where both the issuer and the merchant benefit from the transactions.

In this context, it showcases how closed loop systems limit the use of funds to particular environments, allowing for more targeted marketing and customer engagement strategies. Entities involved have more control over the transactions and can tailor rewards or incentives to users, positively influencing consumer behavior.

This definition is distinguished from the other options, which touch on broader concepts or systems that lack the specificity of the closed loop arrangement involving prepaid cards and merchant restrictions.