What’s behind the move to closed loop payments and branded digital wallets

The shift in the way consumers shop and pay has made digital, mobile, and high-frequency transactions the norm. This evolution of commerce has outpaced payments innovation, leading merchants to seek new solutions that boost customer loyalty while reducing mounting processing fees. Enter the rise of branded consumer wallets – payment offerings that allow retailers and brands to facilitate transactions directly with their customers rather than rely on traditional payment rails.

Branded wallets enable merchants to keep payments within their own ecosystem, avoiding interchange and other third-party fees. But these solutions go beyond just cost savings. By integrating loyalty rewards, stored value, and other incentives into their payment flow, merchants can drive increased purchase frequency, stronger customer engagement, and ultimately higher lifetime value from their user base. Fintech companies like Ansa are now making it easier for businesses of all sizes to launch their own branded payment experience without heavy institutional investment. As the branded wallet trend gains momentum, it signals a broader industry shift towards more customer-centric, closed-loop payment models.

Tearsheet spoke with Sophia Goldberg, CEO & co-founder of Ansa, for more color about the trend towards closed-loop payments and branded wallets. We asked her about real-life case studies and metrics behind what some brands experience when they roll out new branded payments.

Q: What’s behind the trend towards branded consumer wallets? 

What’s behind the trend is the change in commerce. From marketplaces and microtransactions to convenience stores and quick-serve businesses, commerce has evolved, outpacing payments innovation over the past decade. Merchants and brands have gone digital and have better data, which gives them a richer understanding of their customers. Consumers’ expectations have also increased. It’s more important than ever to provide a better, more rewarding experience, especially for repeat customers — the most valuable customers.

Costs are going up across the board as inflation and high interest rates impact businesses, which Forrester research suggests will discourage consumer spending and decrease sales volume. Customer loyalty becomes more unpredictable and therefore more valuable. Enabling consumers to leverage rewards and loyalty incentives to supplement their everyday spending at checkout becomes essential to retaining customers and off-setting customer acquisition costs — which are also on the rise. Ansa helps brands defend against tightening customer budgets and drive increased frequency in a way that’s win-win for consumers and brands alike. 

Additionally, merchants spend over $138 billion annually on fees. These fees, while they may seem small in dollar value individually, make up merchants’ largest cost only second to wages. Today 60% of US consumer transactions take place via credit cards, and the unit economics of these payments simply aren’t aligned with how consumers transact today. From microtransactions to small transaction volume payments, purchases like a $4 latte can incur additional costs exceeding 12.5% — a massive burden on businesses. A closed-loop system — where funds are already with the merchant — enables merchants to reduce their payment fees.

Q: What does a merchant save from a payments processing point of view? What do they gain from loyalty? Any metrics would be great. 

Payments have a mix of fees: a variable fee and a fixed dollar fee. Interchange is the variable fee, but the fixed fee is extremely impactful on smaller transactions. When the transaction size is smaller, the fixed fee is a higher percentage. So, 30 cents on a $5 transaction is a higher percentage of the total revenue and will impact margins more than it would on a $100 transaction. This is where stored value with closed loop customer wallets comes into play. In addition to offsetting these costs, a wallet helps drive customer retention and frequency. 

Across all Ansa platform users, merchants have experienced a significant 30% boost in average order frequency and a notable 26% increase in revenue, showcasing the platform’s effectiveness in driving business growth and customer engagement. 

Compass Coffee, which partnered with Ansa for their branded customer wallet last year, experienced a 26% increase in revenue and a 65% boost in engagement from wallet users within the first quarter of use. During the same time period, Ansa’s technology drove down the company’s payment processing costs by 28%. Compass Coffee saw a 113% MoM adoption of their branded wallet. 

By integrating rewards, incentives, and other loyalty initiatives with customer balances, merchants are able to boost loyalty and reduce their spend on processing fees. This puts growth in the hands of the merchants who directly — and immediately — can benefit. Customers get a seamless, elevated experience and merchants get a loyalty engine that boosts their top and bottom lines.

Q: Is this only for a coffee shop, trying to replicate the Starbucks app experience,  or would smaller merchants want this? 

Hardly. The use cases and types of brands and platforms that can benefit from a wallet are broad and far-reaching. Coffee and quick service restaurants (QSR) are a natural fit for Ansa’s technology simply due to the nature of their 

payments — high frequency and low transaction sizes; however, the applications for branded customer wallets and stored value are much wider. From traditional retail, convenience stores, micromobility, and to marketplaces we’ve had discussions with a wide swath of brands looking to solve two pain points: high costs of payments and increasing customer LTV. With marketplaces, for example, our technology can keep funds within their ecosystem, avoiding unnecessary transactions and friction. This looks like what we’ve started to refer to as a “revolving wallet”: where a seller keeps some earnings on-platform to purchase from another seller on the marketplace platform. For a retailer a wallet looks more like store credit, helping customers have a seamless return experience, instant access to those funds, and even an incentive to take it as a credit. While these use cases may seem far apart they’re both at the intersection of driving spend from your best customers and reducing payments fees.  

Q: Are consumers open to using multiple wallets? 

Our ethos at Ansa is centered around using the right payment method for the right payment type. Ansa isn’t ideal for every single merchant, nor for every customer of the merchants we serve. Ansa’s technology is focused on driving frequency and retention, increasing the lifetime value or LTV of a merchant’s best customers. That means that consumers will have wallets only where they make regular purchases — likely with only a small handful of merchants — however, the combination would be unique to the individual consumers and their purchasing behavior. Think about it as the brands you would have regularly used cash at on a weekly basis 20 years ago. 

Commerce has outpaced payments in terms of innovation. The way we transact and interact with merchants has significantly changed from the launch and rise of “the card”. Today we’re seeing fragmentation within payments mostly because there is a mismatch between the current payments infrastructure and what enables consumers. Closed loop payments and branded customer wallets change that for both the consumer and merchant. 

Q: Before Ansa, how would a merchant have created their own branded wallet?

The strongest example of a branded wallet in the market is the Starbucks ecosystem, which has 23 million annual users in the U.S. In 2022, Starbucks had $1.6 billion held in customer balances — a financial reservoir that yielded a remarkable $21 million in interest for Starbucks that year. Another is Uber Cash which they use across their ecosystem. 

These are really hard programs to build in-house. It takes alignment across technology, compliance, treasury, accounting, customer experience, and operational teams. It requires an investment in most of these areas, but what’s more difficult for enterprise companies is that it requires coordinating resources from multiple teams. When push comes to shove, the business case may not be there for a company to invest those resources. That doesn’t diminish the value they could see from launching a closed loop payment experience, that’s where Ansa comes in. By hugely lowering the bar to launch a closed loop wallet program, we can help more brands reap the rewards without over-investing outside their core areas of expertise. 

Q: Is there a role for financial institutions in this trend? What is that role?

Open loop payments, like most card transactions, involve a four-party model, where financial institutions play a major role — notably the issuing and acquiring bank. Closed loop payments, meaning wallets, give greater control and flexibility to the merchant and the end customer, removing a lot of the middle men, where fees are incurred. That said, there are still key roles for financial institutions, especially the banks. 

Q: Couple best practices in launching a branded wallet?

Customer wallets at their best boost merchants’ customer engagement, retention, and frequency, but that starts with adoption. Engaging adoption of customer balances by integrating rewards, incentives, and other loyalty initiatives is key. This is something Starbucks has mastered, exemplifying the potential for brands to revamp their payment infrastructure to improve customer experience, cultivate loyal customers, and reap financial benefits. 

We help brands design incentive programs that match their goals, and the stage. It’s not a “one size fits all” strategy, nor can a brand “set and forget.” We’ve built — and are excited to continue building — flexible tools for merchants to drive engagement in the ways that fit their strategies and brand. We like to call ourselves “loyalty with a little L” for this reason.