Samsung's plan to acquire LoopPay gives the mobile phone maker a technology that can reach more merchants faster than Near Field Communication (NFC), the technology used by Apple Pay and Google Wallet.
The move, announced today, is especially striking given that Samsung has long built NFC into its handsets for other purposes, and thus would not have to wait for its customers to upgrade their phones to use an NFC wallet. Apple, by contrast, built NFC only into iPhone 6 models, which came to market late last year.
LoopPay's technology executes contactless payments by using a fob or case to transmit a magnetic signal to a standard point of sale terminal. Ninety percent of terminals see LoopPay's signal as a physical card swipe, so most merchants would not have to upgrade to new hardware. One of Apple Pay's challenges has been winning over merchants; notably, CVS and Rite Aid turned off their NFC readers shortly after Apple Pay's launch.
Instead of using a LoopPay fob, Samsung can build LoopPay's technology into its next smartphones, eliminating the need for consumers to buy separate hardware to make mobile payments. The technology can coexist with NFC, but Samsung's deal for LoopPay demonstrates its reluctance to go with an NFC-only strategy.
The acquisition marks a much more proactive step than Samsung has typically taken in mobile payments. With few exceptions, Samsung's moves have made the company seem like a fast follower. Its earliest Samsung Wallet looked very much like Apple's Passbook app, and Samsung built a fingerprint reader into its Galaxy smartphones only after Apple debuted the technology in its iPhones.
But Samsung has also, at times, shown a willingness to go against the prevailing wisdom in how to handle payments. When many mobile wallet makers were building systems based on scanning two-dimensional QR codes, Samsung created a system that lets its phones emulate the one-dimensional bar codes already used in stores. This move enabled its phones to work with the many laser scanners that are not compatible with most other handsets.
Financial terms of the deal were not disclosed. As part of the acquisition, LoopPay founders Will Graylin and George Wallmer will work with Samsung's mobile division.
Samsung was already a strategic investor in LoopPay, along with Visa and Synchrony Financial. Samsung and LoopPay were also recently rumored to be collaborating on a mobile payments project.
In addition to providing Samsung with an alternative to NFC payments, the acquisition addresses a problem with LoopPay's own business model. LoopPay has typically required consumers to buy the add-on hardware, which can cost up to $90. This could be a tough sell for consumers who are used to getting payment cards or apps for free.