Employee Incentive Cards: The Open-Loop Advantage

Navigator Edition: March 2013
By: Steven Le

Prepaid comprises the fastest growing segment of the U.S. debit market, driven largely by increasing penetration into existing markets. This trend is visible in the employee incentives space, where prepaid cards—in particular, open-loop cards—have gained traction and are now coming to the forefront of the industry.

The business case for incentive cards hinges on greater personalization relative to cash and ease of implementation relative to travel/ merchandise awards. In a 2012 survey of incentive program planners conducted by Incentive Magazine, 37% of respondents believed that gift cards were more effective than cash and 76% believed they were at least as effective. The figures are even more persuasive when comparing cards to merchandise; 55% believed they were more effective than merchandise, while 90% said they were at least as effective1.

Research among incentive recipients validates program planners’ beliefs. In a 2012 study conducted jointly by the Incentive Research Foundation and Incentive Gift Card Council, given the choice between a prepaid card reward and cash, over 80% of employees preferred the prepaid card. However, the type of card is a significant driver; open-loop rewards are preferred to cash, but cash is preferred to closed-loop cards. In fact, open-loop cards are three times as popular as closed-loop cards and cash combined2.

Although closed-loop has historically led open-loop in share of cards awarded (55% to 45% in 2011), open-loop has steadily closed the gap3. Incentive planners report that the use of open-loop cards has increased significantly over the past four years. If the recent trend continues, we expect the open-loop segment to overtake closed-loop as the largest component of incentive prepaid within the next two years.

The overwhelming preference for receiving an open-loop card can be explained by a number of factors. Psychological research suggests that cash rewards tend to be incorporated into a recipient’s regular budget, whereas prepaid cards are more likely to be spent on discretionary – and potentially more memorable – purchases4. An open-loop card provides the opportunity to spend freely on “fun” purchases, without the limitations of a single-merchant card. Given these factors, it is no wonder that open-loop prepaid cards are capturing share at the expense of alternative incentive categories. They offer planners an opportunity to simplify their incentive programs while providing more effective rewards to their employees. This value proposition will continue to drive growth of open-loop prepaid in the employee incentive market in the coming years.

1 Incentive Mag 2012 Gift Card IQ Survey,–Gift-Cards-Outpace-Cash/.
2 It’s in the Cards: An In-Depth Look at Prepaid Cards in Incentive, Rewards & Recognition Programs (IRF/IGCC 2012),
3 2012 First Data Prepaid Employee Incentive Card Study,
4 White, R. (2008). The mental accounting of gift card versus cash gift funds.

For more information, please contact Steven Le, Senior Analyst specializing in Deposit Access and Prepaid Strategy,

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