Economic Growth – Any country with a solid, stable and raising economy always has a very strong payment system. The impact of electronic payments i.e. money in the form of bits and byte rather than tangible items like paper or coins on economic growth is much higher and it’s a proven fact. Payments, monetary and financial stability make a powerful economic foundation and it’s proven in many European countries.

This post was originally published on 26-May-2015 on LinkedIn, to read its original post Click here. This post will help to have basic & fare understanding around payment intelligence.


Payment Intelligence & National Payment Systems

Payment Intelligence around national payment systems is extremely critical and important to know. Normal we have two types of payment systems in economies and payment industry. Enabling digital payments for economic and citizen’s personal development. Economic power, ranking and payment environments as mentioned below have their own benefits & shortcoming. 

  • CLPS” – Closed Loop Payment Systems
  • OLPS” – Open Loop Payment Systems

Strong Payment System Makes Powerful Economic Growth

Cash is the most widely accepted payment method. This designate Cash as the King but mobile payments to prove itself as economic freedom. Although it (Mobile Money) had been designed as a peer-to-peer payment system it has gone much beyond the basic idea and as on date it helps Utility bill payments, Airtime top-up, micro-savings, microloans etc. and this forms Mobile Payments ecosystems.

Africa especially the eastern/southern part is the home of Mobile Money. Mobile Payments are the most frequently used and widely acceptable technological payment instrumentsMobile Payment Service Providers (MPSP) – A company or organization that partners with/develop their own an open- or closed-loop payment instrument or card issuer to provide its business customers with a commercial payments tool. 


Payment Intelligence & Its EcoSystems

Payments Ecosystem – Payments market has mainly 2 types of them i.e. Open Loop and Closed Loop. There is no fixed book definition for Open Loop Payment System (OLPS) and Closed Loop Payment System (CLPS). Different players as per their needs and markets the design and define open and closed dichotomy and have proliferated their business and markets for decades.

All developments for both open systems and closed systems are in play and in parallel define by business strategies and market dynamics. Mobile payments space also on the same track and this article focuses on the matter of open vs. closed-loop mobile payment solutions.

Strong Payment System Makes Powerful Economic Growth

Before we start our ride on this subject and talk about the advantages and disadvantages of these respective options, Let’s take a small clarification on what exactly is meant by “open-loop” and “closed-loop” in mobile payments domain. Each payment service provider normally defines its own “Open / Closed Loop” market.


Intelligent Payments – A New Face of CashLess Payments

How the bundle of machine learning (most people loosely interchange ML with Artificial Intelligence though) technologies are changing and will continue to change our Mobile Payments experience? The demand for easy and hassle-free services around payment channels will continue to accelerate. We have seen the transformation of our payment methods from barter to now mobile payments.

Open Loop Payment System” is an ecosystem where multiple parties are involved for every transaction for an example – Bank as an Issuers deals with the consumer, Brands are the cards: Master, VISA, American Express, etc.

Processors an inter-mediatory; who process transactions, Acquirers are the banks who the merchant deals with and Merchants normally consumer interface for transactions, for example, A general-purpose card carrying the Visa, MasterCard, Discover or American Express logo that can be used anywhere those cards are accepted.

Closed Loop Payment System” is an ecosystem where customer experience is in focus program and can be a complement to Open-Loop, well defined and the small group without middle-man partners example mobile money in any MNO is a mostly closed loop.


Benefits – “Open Loop Payment System”

  • Cost-effective/efficient implementation – Difficult to manage but once done and setup gets process-driven thereafter Mobile payment services increasingly interconnect with other payment services.
  • MNOs are partnering with electronic funds transfer networks to allow domestic customers to access ATMs for cash withdrawals by entering a code, rather than swiping a payment card. To allow customers international access to cash, MNOs are partnering with payment card issuers to offer open-loop prepaid cards.
  • Customer loyalties – Customer/subscriber gets more and more loyal as they start tasting the service and experience the best with the flexibility and power of the product.
  • Incremental sales – Sales for merchant started incrementing due to customer experience, ease of use and convenience & flexibility.
  • Marketing opportunity – Brand establishment happens automatically in a slow but very strong foundation
  • Guaranteed payment – Payments are guaranteed to the acquirer from the issuer no matter what happens at the merchant or subscriber level.
  • Minimal credit risk – Inline with the last point


Shortcomings – “Closed Loop Payment System

  • Merchant qualifications & credential checks – bigger and wider it gets, more problematic and near impossible are not possible to get credentials validation for your merchants.
  • The inability to turn a merchant on / off at will.
  • Geographic controls and reach: If not controlled well this can create issues on legal, brand and business front


Benefits – “Closed Loop Payment System

  • Control over merchant qualifications and credentials
  • The ability to turn a merchant on / off at will.
  • Limited reach – Less risk & assured security between these two cases, there can be a range of mobile payment services offered
  • Financial institutions and MNOs who have partnered to create agent networks to reach new customers in geographic areas which are typically underserved by the banking system.
  • MNO retail outlets and other storefront retailers offer similar services to those of limited purpose bank branches, signing up customers, taking in deposits, and paying out cash to settle mobile payment transactions.
  • Branding the payment service may be branded under the name of the bank or under the name of the MNO.


Shortcomings – “Closed Loop Payment System

  • Limited acceptance to specified merchants/service availability – Under the MNO-centric mobile payment model, MNOs offer mobile payment services as a means to add value to their core communications service. Commonly, customer funds are held in a prepaid account by the MNO itself or a subsidiary.
  • Time / cost to implement merchant & agent network and card acceptance – Mobile payment services that are offered for purchases & transactions from a single, or a limited number of merchants & agents, with limited value for products related to the use of a mobile phone.
  • The operation in this model, the issuer/wallet provider (having the relationship with the cardholder or Mobile Money Wallet holder) and the acquirer / wallet related service point (having the relationship with the merchant or agents) is the same entity. This means that there is no need for any changes between the issuer and the acquirer.
  • Since it is a franchise setup, there is only one franchise in each market location, which is the incentive in this model. There is no competition within the brand; rather you compete with other brands.
  • Mobile payment services are comparable to closed-loop prepaid cards and the guidance on AML/CFT measures and regulation envisaged here are not intended to apply to these services. However, this guidance may apply where ‘airtime’ funds can be transferred and are accepted for payments or an alternative currency.



On the other hand, when it comes to saying no to Cash, every merchant finds it difficult for many reasons. Responses to valid argument on (if any) “if not Cash” then why not mobile or digital payments will cover in upcoming posts.


Points to Note:

All credits if any remains on the original contributor only. You can find our other post on payment intelligence “The new Intelligence in the market – PaymentIntelligence


Books + Other readings Referred

  • Open Internet – Research Papers and ebooks
  • Personal hand on work on data & experience of  @AILabPage members


Sign-tConclusions: What are the implications of your choice? Is it going to change the world (unlikely), be a significant “win”, be a nice hack, or simply serve as a road sign indicating that this path is a “waste of time” / “ Very useful with potentials ” (all of the previous results are useful). Are your results general, potentially generalizable, or specific to a particular case? Which system is useful and needed for the business considering the market you operate and synchronised with your strategies and goals. Another mixed version of open & closed coming to market Google Android M with built-in fingerprint support and Android Pay at I/O 2015

Hash Tags : #payments , #mobilepayments , #mobilemoney , #money , #mobile

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Posted by V Sharma

Technology specialist in Financial Technology(FinTech), Photography, Artificial Intelligence. Mobile Financial Services (Cross Border Remittances, Mobile Money, Mobile Banking, Mobile Payments), Data Science, IT Service Management, Machine Learning, Neural Networks and Deep Learning techniques. Mobile Data and Billing & Prepaid Charging Services (IN, OCS & CVBS) with over 15 years experience. Led start ups & new business units successfully at local and international levels with Hands-on Engineering & Business Strategy.

One Comment

  1. Excelent read….very informative



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