Which of the following best describes a Closed System in payment card systems?

A closed system in payment card systems is characterized by a setup where the issuer and acquirer are the same organization. In this type of system, the financial institution that issues the payment card also processes the transactions that occur with that card. This allows for direct control over both the authorization and settlement of transactions, often resulting in streamlined processes and reduced costs for the issuer.

By having both functions under the same organization, the closed system can efficiently handle issues such as fraud detection and customer service since there is no intermediary involved. Additionally, closed systems are typically more secure and can offer specific benefits or loyalty programs to users, as the issuer retains full control over the payment processing ecosystem.

In contrast, an open system allows participation from multiple financial institutions, making transaction processing more flexible but typically less centralized. Peer-to-peer networks focus on direct transactions between individuals rather than involving a centralized acquirer or issuer. Lastly, decentralized payment processing systems, such as those based on blockchain technology, operate without a single point of control, further differing from the concept of a closed system.