In the fast-evolving world of European payments, open-loop systems often dominate headlines. Yet, behind the scenes, closed-loop payment models remain a critical enabler of innovation - especially for businesses seeking speed, control, and cost efficiency. Our latest analysis at PaymentGenes Consultancy reveals why these systems matter, how they operate, and what’s next as regulatory changes loom.
Closed-loop payment systems restrict the use of a payment instrument to a defined network of merchants or services. Think of a fuel card accepted only at specific stations, a transit app valid within one city, or a retailer gift card redeemable exclusively in its own stores. These models thrive under PSD2 exemptions, specifically Articles 3(k) and 3(l), which allow businesses to embed payment functionality without obtaining a full Payment Institution (PI) or Electronic Money Institution (EMI) license.
This regulatory flexibility has fueled adoption across Europe. Our research shows over 1,500 firms in 30+ countries operate under these exemptions, with strong representation in sectors such as:
The appeal is clear: faster go-to-market, lower compliance costs, and full control over user experience. These systems eliminate scheme fees, simplify infrastructure, and allow integration with loyalty programs or fleet management tools. For retailers, they drive repeat purchases and customer lock-in. For mobility providers, they enable seamless expense tracking. For telecoms, they create frictionless digital ecosystems.
While exemptions have long been a strategic lever, change is coming. PSD3 and the Payment Services Regulation (PSR) aim to tighten criteria, harmonise notification processes, and introduce light-touch oversight for high-scale operators. Businesses relying on exemptions should prepare for:
These reforms reflect regulators’ desire to balance innovation with consumer protection and market integrity. Companies that anticipate these changes will maintain their competitive edge.
Closed-loop payments are not a loophole, they are a deliberate design choice enabling controlled, efficient market entry. For product leaders and compliance teams, the message is clear: understand the exemption framework, monitor regulatory developments, and plan for scalability.
At PaymentGenes, we help businesses navigate this complexity, whether you’re a retailer launching a gift card program, a mobility platform building a fleet wallet, or a fintech exploring hybrid models. With PSD3 on the horizon, now is the time to act.
Bottom Line: Closed-loop payment systems remain a powerful, underappreciated force in European payments. As the regulatory landscape evolves, businesses that leverage these models strategically and compliantly will unlock speed, control, and growth.
Want to dive deeper into the data, regulatory insights, and strategic recommendations?
Download the full report here or contact us at consultancy@paymentgenes.com
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