Rumors have been rampant for a number of months that Samsung Electronics would announce its entry into the still-burgeoning mobile payments arena when it debuts its next line of smartphones in conjunction with the upcoming Mobile World Congress next month. Samsung gave mobile-payment watchers a sneak peek of those plans on Wednesday.
The announcement that the South Korean smartphone maker plans to acquire US-based start-up LoopPay is as strong of an indication as any that Samsung plans to compete against the likes of Apple Inc in order to capture some of the billions of dollars that are already shifting to mobile devices. Writing for the Wall Street Journal, Jonathan Cheng says,
The acquisition of LoopPay for an undisclosed amount will pit the South Korean smartphone maker against other technology giants with mobile payment services, including Google Inc., eBay Inc. ’s PayPal and Apple Pay, which started in the U.S. last fall.
As even more money goes mobile, the battle to control its flow across billions of smartphones, as well as millions of online and physical point-of-sale locations, will only heat up. Mobile commerce is expected to reach almost US$300 billion in 2014 across the 46 markets researched by Euromonitor International. Most impressively, mobile payments is expected to expand nearly four-fold over 2014-2019 in those markets, to exceed US$1 trillion in payments made through tablets and mobile phones. Nevertheless, that will amount to only 4% of all card payment volume in 2019, meaning that the untapped market 10 to 20 years from now remains enormous.
What this technology from LoopPay does for Samsung is it is provides the South Korean smartphone manufacturer with a formidable option that meets the market where it stands today in terms of technology development. LoopPay has a proprietary technology called Magnetic Secure Transmission, which leverages a secure chip to store and transmit data to existing POS terminals through a small, low-cost inductive loop that can be embedded into a variety of devices, including smartphones. The Wall Street Journal author went on to describe the importance of this technology in helping Samsung bypass long-standing merchant acceptance hurdles:
LoopPay’s technology, however, purports to sidestep one obstacle that has so far hindered the wide adoption of mobile-payment services: the need for merchants to have to upgrade their checkout devices. Instead, LoopPay says its magnetic induction technology allows a smartphone to be tapped against the magnetic-stripe-reader machine that is already found in the vast majority of U.S. retail stores.
This acquisition gives Samsung an edge against an NFC-based wallet, such as Apple Pay, because Samsung does not have to convince retailers to upgrade their terminals to support NFC payments as Apple has had to do with its current NFC-only strategy. In theory, Samsung could have wider acceptance than Apple Pay at launch thanks to this LoopPay acquisition. More importantly for Samsung, this technology can work alongside NFC. Given that Samsung’s line of smartphones have come equipped with an NFC chip dating back to 2012, it only makes sense that Samsung will also leverage NFC technology, which to date has proven to be best for providing seamless and instantaneous payments. If Samsung plans to win this mobile payments war, its future mobile wallet will be able to run off of both of these technologies until NFC-enabled payment terminals are widespread across all merchant types.
Mobile wallets that leverage the NFC chip in a smartphone to execute the payment transaction have struggled to date as merchants have been slow to update to terminals with the necessary technology. Although the payments industry and consumers have a say in the mobile payments debate, merchants certainly have one of the loudest and most important voices. If an aspiring mobile wallet provider cannot gain traction with merchants, that mobile wallet will not make any inroads into the market. Google Wallet is the classic example of an early mobile wallet that failed because retailers did not embrace it. In the case of the Google Wallet, retailers feared what Google might do with the payment transaction data. The fact that Samsung is looking to leverage the existing technology that is found in many merchant terminals today rather than requiring some sort of an upgrade is a big plus for the future of Samsung's future mobile wallet.
Read more of Michelle Evans' mobile payments insights in her free white paper.