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In what was probably one of the worst kept secrets in the industry, Samsung announced Wednesday it acquired LoopPay along with the company's proprietary contactless payments technology that is supposed to work with 90 percent of the point-of-sale terminals deployed in the U.S.
Samsung intends to integrate LoopPay's Magnetic Secure Transmission technology into its mobile devices. LoopPay's selling point with the technology is that it can "communicate" with magnetic-stripe readers. The forthcoming Galaxy S6 smartphone, which Samsung will reveal March 1 at the Mobile World Congress in Spain, will reportedly feature LoopPay’s technology — though neither company has yet officially acknowledged such a marriage.
While LoopPay sidestepped inquiries about its involvement with Samsung leading up to Wednesday's announcement, CEO Will Graylin two weeks ago retweeted an article about the rumored collaboration between the two companies regarding the Galaxy S6.
Samsung last year made made an investment in LoopPay, which also secured funding from Synchrony Financial (Amazon's private-label credit card issuer) and Visa.
"We are excited to take our relationship with LoopPay to the next level, by bringing consumers a mobile wallet solution that is not just safe and reliable, but also widely accepted at more locations than any competing service," said David Eun, EVP of Samsung's Global Innovation Center. "Through this deal we can significantly accelerate our mobile-commerce efforts. LoopPay’s outstanding leaders and team have deep-rooted relationships with banks, card networks and merchants that will complement those Samsung has established over the years."
For much of its existence, LoopPay's technology was met with skepticism from industry executives and analysts. Doubters viewed the idea of using (and buying) a fob device or smartphone case embedded with the MST technology in conjunction with a free mobile app as a sloppy partnership and not a true mobile payment. And sometimes the technology didn't work. One industry analyst Mobile Payments Today spoke to in the past said he experienced an incident where the fob caused problems with a merchant's terminal.
Some industry observers believed LoopPay's technology could be an asset in a mobile phone. Obviously, Apple was out of the question, although LoopPay has an iOS app (for now). The next best thing for the company was to get themselves involved with Apple’s primary competitor in the smartphone market. And there was little doubt Samsung knew about Apple Pay months before it debuted and wanted to create a mobile wallet of its own.
"Samsung clearly intends to respond to Apple Pay with its own payment system, and to date no wallet solution has rivaled the user experience that Apple Pay has been able to deliver, so we can expect them to try to replicate the user experience as closely as possible, with perhaps a few unique components in order to stand out," Rick Oglesby, a senior research analyst for Double Diamond Payments Research, told Mobile Payments Today in an email.
LoopPay's technology does have the advantage over the Apple Pay feature of Passbook in that it is mostly compatible with the existing payments infrastructure. In fact, the company's marketing strategy centers on this concept. LoopPay trumpets this in all its advertising emails to consumers. Oglesby acknowledged this advantage, but also believes there's some risk involved with Samsung's new acquisition.
"Samsung will need to continue to support NFC also; it wouldn't make sense to be completely incompatible with Apple Pay," he said. "So if Samsung Pay supports both Loop Pay and NFC, then the user's payment experience will vary from merchant to merchant (one experience at mag-stripe merchants, and a different one at NFC-ready merchants).
"This will be confusing to consumers and could inhibit adoption. Additionally, many mag-stripe terminals are behind-the-counter devices and are therefore inaccessible for a contactless payment even when they are technically capable. This could create additional barriers to consumer adoption."
LoopPay's technology also hits a speed bump when it comes to EMV.
Per its own website: "You can add chip cards to your LoopPay account today and use them at mag-stripe readers (MSR) just like any other payment card. However, if the merchant POS terminal is configured to accept EMV cards, you will be instructed to use the physical card to make the transaction via the chip-and-PIN card reader. LoopPay will soon be announcing a solution that will address this inconvenience."
Samsung will face other obstacles if it truly wants to compete with Apple Pay, Oglesby said.
"Samsung also needs to get banks on board in scale, the way that Apple has done," he said. "Samsung therefore needs to be working with the payment networks to create a bank-friendly and secure solution, and hopefully one that ties neatly into the infrastructure that is already in place for banks and networks to interface with Apple Pay. Big technical barriers that lengthen bank activation would create further barriers to consumer adoption."
The battle lines have now been drawn. Some mainstream media outlets have dubbed LoopPay a competitor to Passbook, and by extension Apple Pay, but such a label might be a bit misguided. Apple Pay doesn't need an additional peripheral to conduct a mobile payment. LoopPay's cases can cost as much as $60, though its fob device is much cheaper. In any event, Samsung's answer to Apple Pay was inevitable.
"Other manufacturers and operating system owners need to offer competitive solutions, since there are many checklist buyers that evaluate feature by feature and go with the device that has the most features," Oglesby said about the current mobile wallet battle. "We can expect the other manufacturers and Google to continue this trend; mobile payment functionality will now be a mainstream feature built into new mobile devices coming to market.
"However, that doesn't mean that consumer adoption will be mainstream. Many technologies and products never take hold, and there are big challenges left if this coming generation of mobile payments products is to succeed."
Photo courtesy of Kārlis Dambrāns.
Companies: Samsung Electronics America