What developers get wrong when building gift card reward features (closed loop vs. open loop isn't just a UX decision)

If you've ever been tasked with adding a "send a reward" feature to a product — an employee recognition flow, a referral payout, a survey incentive — you've probably hit the closed loop vs. open loop question somewhere in the spec doc. Most devs treat it as a product decision and move on. It's actually an infrastructure decision, and getting it wrong means rebuilding. Let me explain what I mean. The surface-level difference Closed loop = branded to a specific merchant (Amazon, Starbucks, Nike). Cheaper per dollar of face value, no Visa/MC network fees, but only spendable in one place. Open loop = runs on Visa/Mastercard/Amex, spendable anywhere. Higher fees ($3–6 activation per card), sometimes inactivity fees after 12 months, but maximum recipient flexibility. From a user perspective: closed loop is a brand experience, open loop is basically a prepaid debit card. From a developer perspective, the difference runs deeper. The API reality Most gift card providers — especially open loop —