Samsung Electronics acquired mobile payment company LoopPay and said it will integrate the Boston-based startup's technology into future devices. Samsung is widely expected to announce the next iteration of its flagship Galaxy Android smartphone, likely the S6, at the upcoming Mobile World Congress trade show, and that device may well be the first to integrate LoopPay's technology.
Samsung's acquisition of LoopPay hints at the company's efforts to jump into the already crowded mobile payments sector in general and to stave off the growth of Apple (NASDAQ: AAPL) Pay specifically. To do that, Samsung is hoping that LoopPay's innovative approach to the mobile payments arena will pay off.
Unlike Apple Pay and other mobile payment technologies that require Near Field Communications connections, LoopPay's technology (dubbed magnetic secure transmission, or MST) does not require stores and other merchants to upgrade their point-of-sale terminals. Currently, LoopPay users need to register their cards into the company's smartphone case, and then they can make payments by opening the LoopPay smartphone app, typing in a PIN and waving their LoopPay-enabled case or accessory over a payment terminal's magnetic reader--a reader that would otherwise be swiped with a credit card.
As CCS Insight points out, this means LoopPay's mobile payments service can work across 90 percent of the cash registers across the United States (according to LoopPay's estimates), whereas Apple Pay can only work across 10 percent of those payment terminals. It's that breadth of coverage that Samsung hopes will give its LoopPay-based mobile payments service a leg up on the competition.
"The LoopPay technology is so compelling because of its coverage," Injong Rhee, executive vice president and head of Samsung Mobile, told TechCrunch. "If you look at other competitor solutions in mobile payments, it's actually based on near-field technology, which has very limited coverage in the U.S. We see the MST technology that LoopPay owns has a lot of potential to really solve the end-user coverage issues with respect to point-of-sale terminals."
Rhee declined to disclose Samsung's specific plans to integrate LoopPay into its devices, including whether it would do so on the rumored Galaxy S6.
Apple CEO Tim Cook earlier this month said that Apple Pay, introduced in October, is growing faster than the company had expected. Cook said he thought many merchants would be reluctant to change their point of sale systems during the holiday shopping season, but that the reception has surprised him. Cook noted that Bloomingdale's, Duane Reade, Macy's, McDonald's, Sephora, Staples, Subway and Walgreens are among the 220,000 merchant locations across the U.S. that support contactless payment services like Apple Pay.
Apple Pay is one of a number of mobile payment and digital wallet services--others include Google (NASDAQ: GOOG) Wallet, Softcard and the forthcoming CurrentC payment service from the Merchant Customer Exchange, which is a mobile payments alliance among retailers like Target and Walmart.
With LoopPay, Samsung is hoping to make its own dent in the mobile payments area. But the company does face challenges, as CCS Insights pointed out. "An initial challenge will be convincing checkout clerks all is legitimate, and Samsung will need to first consider raising awareness to prevent awkward store checkouts," the firm wrote in a post on the Samsung/LoopPay announcement.
The firm added: "Apple's solution appears more future-proof: the use of a fingerprint sensor for authentication might be a marginal time saver, but it has a touch of magical, space-aged charm."
But CCS Insight wrote that Samsung could support both NFC-based payments as well as LoopPay's service in one device, thus covering all of its bases. Further, CCS said LoopPay's business model is also more appealing to retailers since there are no additional fees--the firm said Apple is rumored to receive 0.15 percent from each Apple Pay purchase.
"Apple Pay still has the coolness factor on its side, but money transfer is a numbers game, and LoopPay's technology will challenge Apple Pay in the present market. Until every corner shop has a contactless payment terminal, Apple Pay users can't leave their wallets at home," CCS Insight wrote.
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