Samsung targets US market with LoopPay acquisition

Friday 20 February 2015 | 10:45 CET | Background

Samsung has acquired LoopPay, an American start-up with a unique solution for mobile payments. This gives Samsung control over a technology that allows smartphones to process credit cards with a magnetic strip. The Samsung Galaxy S6 is expected to feature the technology. This is a key feature in the US, where the magnetic strip is still used to verify the card. In Europe, the technology will prove less useful, as the magnetic strip on cards is usually disabled, in favour of a chip and PIN system. For that, Samsung is developing NFC mobile payments. 

LoopPay simulates magnetic swipe

LoopPay (based near Boston) has a product tailored for the US market. The core element is a Magnetic Secure Transmission (MST) transmitter. This creates a magnetic field that imitates the magnetic signal created when a card is swiped in the magnetic reader. 

The transmitter only needs to be held alongside the card reader, not swiped. The simplest form is LoopPay's Fob, a key bob with the MST sender inside. LoopPay also offers the Card, a device about the size of a credit card, with a button to activate the transmitter.

The Card can also be housed in a case specially designed for the iPhone (iPhone 5/5s, 6 or 6 Plus). Both versions work with a built-in battery with a standard USB charger.

Credit card in the app

LoopPay's product works with iOS or Android 4.3 and higher. The credit card information is not stored in the hardware, but in an app on the smartphone. The devices communicate via Bluetooth.

The user needs to load his credit card information in the app, by swiping the cards in the reader that inserts in the audio jack of the phone. (Payment platforms such as Square and PayPal use a similar solution, but then on the seller's side).

Any credit card can be added, as well as any other card with a magnetic strip, such as loyalty cards. There are billions of these in the US. 

Customer cards, savings cards and discount passes are also often fitted with magnetic strips, and US retailers often issue customer cards that also work as (prepaid) credit cards. Promotional cash-back offers are then credited to the card. In Europe, a numerical PIN or 2D barcode is more commonly used.

LoopPay does not work with EMV passes

The magnetic strip is still the standard for card payments in the US, while Europe has switched to the EMV infrastructure. European payment cards have a built-in chip that communicates with Visa/MasterCard and verifies the security of the card (this is why the card needs to be inserted in a point-of-sale terminal).

The magnetic strip is still on the cards, but is often blocked. A code on the card (201) ensures the card is refused if used in this way. If the point of sale has activated EMV, then only the chip verification system will work.

European retailers that accept American payment cards still use the magnetic swipe, as do US retailers that take European cards. It is up to the bank that issued the card whether the system will work.

LoopPay's system does not work with EMV, making it of limited value in Europe. The magnetic strip is disabled on most European payment cards and also rarely used in customer loyalty cards. 

US migrating to EMV and NFC

The US will start the transition to EMV cards this autumn. Banks are already starting to distribute cards with EMV chips, and US consumers will need to get used to chip-and-PIN payments. If a payments terminal has activated EMV, then a EMV credit card cannot be used with a magnetic swipe reader, the same as in Europe.

This means LoopPay's potential market is shrinking also in the US. The transition will be a long one though, as the existing infrastructure based on magnetic strip readers will be used for many years yet.

However, from the end of this year, banks and credit card issuers will start asking retailers to cover the costs of skimming and fraud. This gives them a financial incentive to update to EMV payment systems.

When taking the decision to replace the POS equipment, many retailers are moving directly to terminals that can also accept NFC payments. This means they can also accept Apple Pay.

Samsung betting on multiple horses

Samsung started working with LoopPay last year. The company has already said that its technology will be used in an important smartphone. While nothing is confirmed yet, this now appears likely to be the Samsung Galaxy S6.

This decision is due entirely to the requirements of the US market. This is underlined further by the fact that LoopPay will become a subsidiary of Samsung Electronics America, Inc. 

With LoopPay, Samsung has acquired a technology that works immediately with almost all credit cards and shops in the US. This is a much wider reach than Apple Pay. The S6 will also have NFC and a 2D barcode reader of course, as Samsung is not one to bet on only one horse. Samsung may also have its European NFC payments ready before Apple brings its payment service to the region. 

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