Which best describes a characteristic of a Closed System in payments?

A Closed System in payments is characterized by limitations on where the cards can be used. This means that transactions can only occur within a specific network or set of merchants that have signed agreements with the payment system provider. For instance, a closed-loop payment system may require customers to use their cards exclusively at certain retailers or service providers, thereby controlling the transaction environment and limiting options for users.

This characteristic shapes the user experience by creating a more defined and controlled ecosystem around the payment method, often leading to loyalty programs or special rewards within that system. Such a structure contrasts with open systems that allow wider acceptance and greater vendor variety, which is essential for broader consumer choice and competitive dynamics among multiple payment card issuers.

In this context, while competition may exist between card providers in a closed system, the limitation of usage points is the defining feature, highlighting the exclusivity of the transactions permissible under that system.