Yesterday, Samsung announced that it acquired LoopPay, a mobile payments technology company, in a move that was widely reported as allowing Samsung to “build a viable Apple Pay competitor”.
The key differentiating feature of LoopPay is that unlike Apple Pay it does not use Near Field Communication (NFC) technology to speak to the point of sale terminal, but instead relies on its own proprietary technology that emits a magnetic field to simulate the magnetic strip found on payment cards. The rationale for this approach is that most payments in the US still rely on magnetic stripe, unlike the rest of the world which is rapidly transitioning to both chip-based systems as well as NFC contactless payments (see diagram below). Indeed, it is estimated that only 3-4% of payment terminals in the US can accept NFC payments, thereby providing strict limits as to where users can pay with their iPhone.
Therefore the LoopPay acquisition provides Samsung with the opportunity to quickly integrate a mobile wallet solution that can be used across more than 90% of retailers in the US and Asia, thereby giving it a significant advantage over Apple in those markets. In the meantime, the rest of the world will continue to move rapidly towards NFC, as this technology is being built into payment cards worldwide as well as having the support of all the major phone manufacturers. The commitment of Apple to NFC has in effect guaranteed its success. While it will not take much foresight to predict that the LoopPay functionality will be integrated into the upcoming Samsung Galaxy S6, it remains to be seen whether Samsung will complete the solution with its own secure element (i.e. chip) and NFC ecosystem. This, I am sure, will become clearer at Mobile World Congress next month.