The Limitations of Open-Loop Systems: Why Change is Necessary 

In the current mobile money landscape, open-loop systems, like traditional Visa and Mastercard solutions, are not a fit for all. These systems, designed for a globally interconnected network, fail to meet the specific needs of underbanked populations, particularly in many countries across the African continent.  

High transaction fees, lack of financial inclusion, and increased vulnerability to fraud are just a few of the critical issues plaguing open-loop payment systems.  

As these challenges grow, it becomes clear that we need complementary solutions that offer a more secure, efficient, and inclusive payment experience. 

Recently, the VeryPay team and the SmartDev team delivered an impactful webinar that covered the importance of Closed-Loop Payment Systems and how VeryPay is emerging as a key player. Read on for the highlights we compile from our recent webinar to develop this guide for MNOs.

Open-Loop Systems Vs. Closed-Loop Systems 

Closed-loop payment systems offer a complementary solution to address the limitations of open-loop systems. Unlike open-loop systems that allow transactions across a global network, closed-loop systems restrict transactions to specific merchants or ecosystems. This creates a controlled environment that offers several advantages.  

“VeryPay uses app-based technology that integrates with any e-wallet and layers onto the existing mobile money infrastructure. Customers can link contactless payment cards or wearables to their e-wallets, providing multiple options for secure, contactless payments.” – Seun 

Five Key Characteristics and Benefits of CLP Systems 

1. Structure

Closed-loop systems typically involve fewer parties, primarily including the merchant and the customer, compared to open-loop systems, which include customers, merchants, card networks, and banks. 

“The big difference with closed-loop systems is that transactions are limited to certain merchants or ecosystems. This gives merchants greater control and integration within their business environment,” explains Geert Theys, CTO of SmartDev.

2. Enhanced Control and Ownership

Closed-loop systems allow merchants to maintain complete control over their payment processes. This can lead to improved data management and customer insights. 

“Merchants maintain complete control over their payment systems, which can lead to enhanced data management and customer insights,” says Seun Solanke, CEO of VeryPay.

3. Cost Efficiency

By eliminating intermediaries such as card networks and payment processors, closed-loop systems can significantly reduce transaction fees, making digital payments more accessible and affordable. 

“By eliminating intermediaries such as card networks and payment processors, merchants can significantly lower payment processing fees.” – Seun 

4. Improved Customer Loyalty

Closed-loop systems make it easier to implement loyalty programs, store credits, and rewards, fostering customer loyalty and retention. 

5. Data Analytics

Retaining transaction data within the merchant’s system allows for better analytics and informed business decisions, which can lead to improved customer satisfaction and business growth. 

How VeryPay Implements Closed-Loop Payment Systems  

VeryPay’s innovative approach to closed-loop payment systems addresses many of the challenges faced by merchants in Africa. By collaborating with Mobile Network Operators (MNOs), VeryPay’s app-based wallet companion solution transforms a merchant’s smartphone into a user-friendly contactless payment device. 

Enhance the Customer Experience

 Customers can make secure transactions using various payment tokens, such as physical cards, bracelets, virtual cards, and QR codes. This flexibility enhances the user experience and promotes financial inclusion. 

Merchant Perspective

 Merchants can download an app that links to their e-wallet, turning their NFC-enabled smartphone into a mobile POS terminal. This setup reduces the need for expensive hardware and makes it easier for merchants to accept digital payments. 

Implementation Process

Implementing VeryPay’s system is straightforward and can be completed in two to three months, depending on the complexity. The process usually starts with a pilot, moving into a market rollout, and eventually leading to a full launch. 

Learn more about how VeryPay complements a Visa/Mastercard solution. 

What Industries Can Benefit from Closed-Loop Payment Systems?

1. Education

In the education sector, closed-loop payment systems can transform the way schools manage transactions. These systems facilitate cashless payments for school fees, meals, and supplies, promoting financial literacy among students.  

Students can make payments easily using contactless cards or wearable bracelets, and parents can monitor and control spending through digital records. This not only ensures safety by reducing the need for students to carry cash but also streamlines school administrative processes. 

Example: “Imagine a school where students use a simple tap-and-go card to pay for lunch, books, and other school-related expenses. This not only enhances security but also helps parents track their finances and students learn about managing money from a young age.” 

Learn more about how VeryPay impacts the Education System here.

2.Transportation

Closed-loop payment systems simplify public transport payments, making commuting safer and more efficient. Passengers can use contactless cards or mobile wallets to pay for bus, train, or taxi services, eliminating the need for cash. This reduces the risk of theft and speeds up the boarding process, leading to less congestion and more reliable transport services. 

Example: “With VeryPay, passengers can board a bus with just a tap of their card or smartphone, ensuring a smooth and quick transaction. This improves the overall efficiency of the public transport system and enhances the commuting experience.” 

Learn more about how VeryPay impacts the Transportation industry here. 

3. Agribusiness

In rural areas, closed-loop payment systems support seamless transactions and credit generation for farmers. Farmers can use digital wallets to buy seeds, fertilizers, and other supplies and to receive payments for their produce. Digital transaction records help farmers build credit histories, making it easier for them to access loans and other financial services that are crucial for their growth and sustainability.  

Example: “By using VeryPay’s digital wallet, farmers can make purchases and receive payments securely. The transaction records also help them to build a credit history, which is essential for accessing financial support and growing their businesses.” 

Learn more about how VeryPay impacts Agribusiness here.

4. Retail

Closed-loop payment systems enhance the shopping experience by making payments quick, secure, and convenient. Retailers can accept payments through contactless cards, smartphones, or QR codes, which reduces transaction times and improves customer satisfaction. Additionally, digital payment records help retailers with inventory management, sales tracking, and customer insights, which can drive better business decisions. 

Example: “Retailers in busy markets can accept payments through a simple tap of a customer’s card or phone, streamlining the checkout process and enhancing customer satisfaction. Digital records also provide valuable insights into sales patterns and customer preferences.” 

“VeryPay’s mission is to democratize access to financial services in Africa by providing convenient and secure digital ways to pay. This helps to foster financial inclusion and improve the lives of people in the ecosystem overall.” – Sean 

Compliance and Regulatory Considerations 

Navigating the Regulatory Maze 

Ensuring compliance with relevant financial regulations is crucial. VeryPay addresses these requirements by adhering to stringent standards such as PCI DSS and implementing secure coding practices. 

“Every country has different regulations and compliance requirements when handling money. It’s crucial to check which licenses you need for the financial transactions you are planning and ensure ongoing compliance with regulatory standards.” – Geert 

Securing Trust Through Standards 

VeryPay’s commitment to compliance ensures that all transactions meet the highest security standards. This not only protects users but also builds trust with regulatory bodies and partners. 

Achieving Global Compliance, One Country at a Time 

With operations in multiple countries, VeryPay understands the importance of meeting local regulatory requirements. Our team works tirelessly to ensure that our systems comply with the financial regulations of each country we operate in. 

The Backbone of Financial Security 

Adhering to compliance standards like PCI DSS is not just a requirement; it’s the backbone of our financial security strategy. By maintaining these high standards, we protect sensitive financial data and provide peace of mind to our users. 

Learn more about how VeryPay ensures the highest levels of security in its CLP. 

Continuous Compliance: Adapting to Regulatory Changes 

The regulatory landscape is always evolving. VeryPay stays ahead by continuously monitoring changes in financial regulations and updating our systems accordingly. This proactive approach ensures that we remain compliant and secure, no matter how the rules change. 

Embracing the Future of Closed-Loop Payment Systems 

As closed-loop payment systems continue to expand into new sectors and gain wider merchant adoption, they hold the potential to significantly enhance financial inclusion by providing accessible financial services to underserved populations. Integrating advanced technologies like blockchain and IoT will bolster security and functionality, ensuring safer transactions.  

With the rise of contactless payments and mobile wallets, these systems offer unparalleled convenience, aligning with the evolving behaviors of tech-savvy consumers who demand quick and secure payment options. 

VeryPay is at the forefront of these trends, driving economic growth across Africa by creating solutions tailored to local needs. By continuously adapting to regulatory changes, leveraging data analytics for better customer insights, and focusing on improving user experiences, we are committed to leading the way in building a secure, efficient, and inclusive financial ecosystem that meets future demands. 

VeryPay is designed to enhance the mobile money ecosystem by providing a flexible, secure, and cost-effective closed-loop payment solution. It supports financial inclusion, improves payment experiences, and offers a seamless integration process.  

For more information contact our team to book a discovery call where we can address your organisation’s specific needs.