Samsung is expected to unveil its newly-acquired LoopPay mobile magnetic payment technology inside its upcoming Galaxy S6 smartphone. The phone is widely expected to be announced March 1 at Mobile World Congress.
While Samsung hasn't officially announced plans for integrating LoopPay's Magnetic Secure Transaction technology inside any of its mobile devices, a spokeswoman told Computerworld Thursday that announcements "might not be too far off." LoopPay wouldn't comment.
Samsung announced its acquisition of LoopPay on Wednesday for an undisclosed sum, sparking speculation that Samsung is backing an alternative technology to compete with Apple Pay's reliance on Near Field Communication technology.
Currently, LoopPay's technology is available as an add-on card or a fob that can be attached to a smartphone or as part of a phone case. To integrate LoopPay inside the Galaxy S6, Samsung would need to embed a small copper ring in each phone to work with magnetic card readers already widely available in payment terminals in stores.
The LoopPay magnetic system differs from Near Field Communication (NFC) technology in the iPhone 6 and iPhone 6 Plus used with Apple Pay software. Merchants allowing Apple Pay have to install upgraded payment terminals that use NFC to accept Apple Pay; merchant terminals already in use generally have magnetic card readers that work with LoopPay.
Samsung has incorporated NFC in its smartphones for three years to work with Google Wallet and other payment apps, so LoopPay is seen as an alternative to Samsung's current approach. Having both technologies would help it move ahead in mobile payments as NFC payment terminals gain more popularity in the U.S., analysts said.
Visa, MasterCard and other credit card companies have said that NFC adoption is moving ahead in the U.S. as part of a movement toward EMV "pin and chip" (also called "smart") credit and debit cards. But only about half of the 12 million payment terminals in the U.S. will be converted by the end of 2015.
It is expected to take five to 10 years for NFC payment terminals to exceed 90% of all retail locations in the U.S.
"LoopPay will mimic a contactless transaction and is in some ways easier for consumers than what Apple Pay suggests," said Michelle Evans, an analyst at Euromonitor International, a global market research company. "LoopPay is a near-term alternative to NFC and Samsung will obviously continue to invest in NFC in phones, so LoopPay is a stop-gap approach for Samsung. Since LoopPay will work on up to 90% of payment terminals, a Samsung phone [with LoopPay] captures a lot more users than Apple Pay can today."
Evans was one of several analysts who said Samsung is likely to embed LoopPay inside of the Galaxy S6.
"The Galaxy S6 will have LoopPay inside it," said Jordan McKee, an analyst at 451 Research. "So far, LoopPay has been just selling cases and fobs, which can't last very long. LoopPay needed this Samsung acquisition."
While integrating LoopPay into the Galaxy S6 sounds like an ambitious achievement, analysts noted that Samsung became an investor in LoopPay last summer, along with Visa and others. Work on embedding LoopPay could have been under way for months.
"If Samsung can ship LoopPay inside a mobile phone with the same...footprint, it will be a major technological success," said Tim Sloane, an analyst at Mercator Advisory Group.
Both Sloane and McKee questioned whether LoopPay can become successful, with that success dependent on whether Samsung and LoopPay can add tokenization security to transactions to be as secure as Apple Pay. While tokenization is already possible with LoopPay, McKee said financial institutions would have to come on board as well.
Sloane and McKee also questioned whether store clerks and smartphone users will understand and accept LoopPay transactions, where a phone is held close to a magnetic stripe payment terminal to complete a payment. That's different than swiping a magnetic card, which could lead to confusion.
"Magnetic stripe technology is a poor and dying technology that will go away inevitably and LoopPay's technology is attached to that," McKee said. "LoopPay is fascinating technology, but the window is quickly closing. Samsung is clutching at mobile payment straws with this acquisition, trying to get to market quickly."
Evans agreed with Sloane and McKee that Apple has a clear market and branding advantage over Samsung in mobile payments. Banks and credit card companies are already widely showing TV ads where Apple Pay is used with their cards and services. "Apple has a better brand than Samsung and that's a plus in Apple's column," Evans said.
"Apple clearly has won the marketing war and it is unclear what business arrangements Samsung will put in place, if any, to encourage bank participation," Sloane said. "In theory, LoopPay enables Samsung to ignore the banks, but if they do so, then they will also lose bank marketing participation. Failing to do something [with banks] would be a major failure on Samsung's part."
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.