What is a closed-loop card network like Discover?
A closed-loop card network is one in which the same company issues the cards, signs up the merchants and runs the network. Discover and American Express were built this way, while Visa and Mastercard are open-loop networks that rely on banks. Closed-loop networks see both sides of each payment, and today most also work with partner issuers and acquirers.
In detail
In a closed-loop network, one company plays the roles that are split between several institutions elsewhere.
How it differs from an open loop
- Open loop (four-party): the network sets rules. Banks issue cards. Acquirers contract merchants. Visa and Mastercard work this way.
- Closed loop (three-party): the network is also the issuer and the acquirer. It has a direct relationship with cardholders and with merchants.
What this changes
- Data: the network sees the cardholder and the merchant side of each transaction.
- Pricing: there is no interchange between separate institutions. The merchant pays a single discount rate to the network.
- Acceptance: coverage depends on the network’s own effort to sign merchants, which is why closed-loop brands are accepted in fewer places.
Discover combines a US card issuer with the Discover Network, PULSE and Diners Club International. Capital One completed its acquisition of Discover on May 18, 2025. Discover Global Network also has alliances with other networks, so that JCB and UnionPay cards can be processed on its network in certain territories, including the United States.
Few networks are purely closed today. Most mix their own activity with partner issuers and acquirers. See card networks and who’s who in payments. A global payment network helps operators cover brands beyond Visa and Mastercard.