This article inTechCrunch looks at Samsung’s acquisition of LoopPay. This acquisition has widely been identifiedas Samsung’s Apple Pay product (This Mercator Blog identifies key challenges tothat); but the existing LoopPay product isn’t like Apple Pay:
‘“The LoopPay technology is so compelling because of its coverage,” offeredRhee, discussing how the magnetic secure transmission (MST) tech works witharound 90 percent of existing payment terminals currently deployed in U.S.stores. “If you look at other competitor solutions in mobile payments [ApplePay included], it’s actually based on near-field technology, which has verylimited coverage in the U.S. We see the MST technology that LoopPay owns has alot of potential to really solve the end-user coverage issues with respect topoint-of-sale terminals.”
The drawback to such broad acceptance is that the solutiondoes not implement tokenization, instead projecting the card number directlyinto the mag head reader of the POS using a magnetic field. A key issue to be addressed by Samsung is toreduce the size of the existing LoopPay product while maintaining its acceptancecapability and reducing the cost – two steep technological challenges.
The TechCrunch article also identifies that Samsungappreciates how LoopPay appeals to the consumer:
“Rheesaid that the unique MST tech was one reason for Samsung’s early and continuedinterest, but that wasn’t all. Other factors included the “shared vision”between the two companies, such as a desire to provide a compelling way to getusers actually motivated to employ mobile payments solutions at scale.LoopPay’s expertise and talent with regards to this specific field, and howsaid attributes could be leveraged in combination with Samsung’s considerableresources and distribution network, added up to making the Boston-based startupa very attractive acquisitive target for Samsung in the end. Plus, Samsung sawthe possibilities of building LoopPay tech directly into devices, eschewing theneed for additional gear.”
No small aspect of Apple Pay’s success was bankparticipation in promoting the Apple Pay product. It is unclear how Samsung intends to gatsimilar bank participation. It theexisting LoopPay solution it is up to the consumer to decide what cards toprovision in LoopPay and to perform the act of provisioning those cards intothe LoopPay smartphone wallet. While thewallet offers opportunities for bank participation, this has not been a majoraspect of LoopPay’s past efforts and it is unclear how Samsung will approachthat business aspect of bringing a payment product to market.
Samsung in the article blurs the line between broad cardacceptance and the ability to support tokenization, a contradiction that issidestepped:
“WhileLoopPay is based on mag stripe tech, which is set for replacement in the U.S.by EMV (or chip -and-pin) based cards, Eun points out that the infrastructurewill remain in place to support traditional credit cards for some time to come,and both consumers and merchants will be very slow to replace it entirely.LoopPay offers an opportunity to avoid the arduous task of convincing consumersand retailers to change the basic building blocks of the payment process, whileoffering a way to add security (LoopPay supports tokenization to add an extralayer of protection for the consumer) and opening the door to a digital walletthat can incorporate things like loyalty programs and bring more intelligenceto the notion of a wallet in general.
“Thefirst thing we need to solve is really the coverage issue, so that wherever yougo you can actually use your mobile device for payments,” Rhee offered. “Andthen you’re adding a lot of other value-added service on top of that, plus theadditional security that the plastic card may not be able to provide. Acombination of the value-added service, like offering balances on youraccounts, the ability to provision cards remotely, and the ability to protectyour transactions using things like tokenization, all of that is making thesolution a lot more compelling.”
Butwhile that’s compelling, alone it won’t drive adoption, Rhee says. The key tothat is solving the coverage and inertia problems, and that’s where atransmission tech like LoopPay’s MST has the potential to truly become anunlocking mechanism.”
The existing LoopPay product manages broad acceptance bylooking to all aspects of the payment network like a traditional mag stripepayment card. This makes LoopPaytransparent to payment providers, the POS, the acquirer, and the issuer have noawareness that the card has been provisioned into LoopPay. Of course LoopPay could provision a tokeninstead of the tracks right off of the card, but doing so would eliminate thebroad acceptance everyone is so proud of. To accept a token via the mag head in a POS will require the POS bemodified and the rest of the value chain, including payment networks andissuers, will need to be involved.
Samsung will have a remarkable technological achievement ifit can shrink LoopPay’s technology and price to fit a mobile handset. Samsung will have a business achievement whenit can align that technology with a business plan that gets the full support ofthe existing mobile carriers and payments value chain – which may be a harderproblem than the technology.
Overview by Tim Sloane, VP, Payments Innovation for Mercator Advisory Group
Read full story at TechCrunch
Mercator Advisory Group members can read Tim Sloane’s Full Blog that identifies key strategic challenges faced by Samsung.