24 October 2017
John Gessau

John Gessau

John Gessau - ACI Worldwide

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Is Samsung’s purchase of LoopPay a good response to Apple Pay?

20 February 2015  |  3608 views  |  0

We’ve just heard that Samsung is to buy LoopPay.

What’s significant about LoopPay? Well, they have an interesting technology that adds a small piece of hardware to your mobile phone (various forms are available, e.g. a charge case for the iPhone 5 or a Fob for the iPhone 4 or Android phone). The LoopPay App on the phone allows you to add cards to your phone, and the hardware transmits a signal to magnetic stripe readers on POS devices in stores, fooling the POS into thinking that you’ve swiped your magstripe card.

An interesting point to note is that LoopPay has updated their website to very prominently describe how they compare favorably with Apple Pay.

My first thought is that I'm glad that Samsung is making a play in this regard, as this will ultimately help to push the industry forward, and keep other players on their toes.

My second thought is that Samsung seems to be staking so much on LoopPay, which is slightly disappointing. It suggests they didn't have much of a strategy of their own and are now scrambling to buy something that’ll help them react to Apple Pay - unless this was their strategy all along; admittedly they did invest in LoopPay before the Apple Pay launch. So maybe that’s a bit unfair.

So what is their plan here? On the surface, it appears to be a technology move more than anything - there doesn't seem to be strong evidence of the building of a relationship model similar to Apple. However this is probably because there is no strong need - at least not from a technology point of view. LoopPay allows for mobile payments to be made at any point of sale that accepts magstripe. It has the additional benefit of supporting private label and gift cards; and (supposedly) even loyalty. This means that it is going to have immediate value-add for consumers as well as familiarity (swipe then sign). This should go a long way to help with adoption.

On their website, LoopPay claims to be superior to Apple Pay in 3 key areas:

  1. Acceptance at 90% of retail locations (Apple Pay <5%)
  2. Supports 10,000+ issuers as well as gift, loyalty, private label etc (Apply Pay 90 issuers)
  3. Supports a wide range of handsets (Apple Pay only the latest Apple devices)

It all sounds rather compelling on the surface. The reason for all of this is exactly because they are piggy-backing on magstripe technology, which is a really neat idea.

The big problem is that magstripe technology is – well, VERY legacy. At the very least that means the scheme will carry a lot of the security baggage of magstripe. The app itself can be password-protected, but the ability to skim the magnetic stripe remains. LoopPay claim that they will remove some of the expiry date information to combat online fraud, but this is not data that is difficult to guess using (at worst) a brute force attack.

Certainly the fact that Samsung would not need to sign up issuers or merchants to support LoopPay is extremely compelling, as is the fact that it is supported wherever magstripe payments are supported today.

Well, maybe.

In many countries it is common to hand over one's magstripe card to a cashier who does the card swipe. This may pose a challenge for wide scale adoption. I’m not sure I’d want to hand over my phone. More significantly though, EMV cards added to the LoopPay wallet won’t work at EMV-compliant terminals – the terminal will perceive this as an attempt to circumvent the chip security and demand that the card be ‘dipped’ in the chip reader. This is why LoopPay suggests taking your EMV card with you, especially when traveling outside the US. It also means that as EMV terminals roll out, Apple Pay’s acceptance will grow and LoopPay’s will shrink.

Thus, while the arguments against Apple Pay are strong, they do have a few holes. EMV (with contactless / NFC support) is about to roll out across the US en masse; the 90 issuers signed up by Apple in the US represent a vast majority of credit and debit cards and it’s growing; and if Samsung embeds LoopPay into the Galaxy S6, they’ll also be limited severely with regard to supported handsets (although they can still sell charge cases and fobs – though this’ll likely struggle to record significant adoption).

Notwithstanding all the above, I can't help feeling that this is all rather backward. As the world takes deliberate steps toward EMV and enhanced security features, Samsung is taking a step toward magstripe. There must be a strong strategic intent to capture the opportunity in the magstripe space now, while following with a solid phase two plan. Whether that is NFC-based or using alternative payment technology is probably a key question in the boardroom debates. And that could well be effective.

In the meanwhile my question is, will Samsung make more of it in the Galaxy S6 than LoopPay have already published? Luckily we'll soon find out.

 

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