Samsung’s acquisition of LoopPay could be a backward step for the handset manufacturer, which may be betting too heavily on magnetic stripe technology as it takes aim at Apple Pay.

While LoopPay allows for mobile payments to be made at any point of sale that accepts magstripe, its technology carries security baggage in the need for the user to skim a magnetic stripe.

“The ubiquity of LoopPay’s technology is attractive in the current marketplace, particularly given that Samsung does not need to sign up issuer or merchant partners to support it,” said Mark Ranta, retail banking lead for global payments company ACI Worldwide. “The issue is that this approach is based on legacy technology.

“The U.S. is taking an important step toward EMV (Europay, MasterCard and Visa, a global standard for inter-operation of integrated circuit cards) this year, yet LoopPay gives new life to the magstripe,” he said.

Storing data
LoopPay’s technology is used in a fob and a digital payment card and does not require near-field communications, like Apple Pay or Google Wallet.

The fob can be used to complete transactions with a default card. Smartphone users can select the card they wish to use and enter a PIN number to authorize the transaction.

Broadly accepted now, but what about the future?

Questions dog the prospects for LoopPay’s technology, given that merchants are seen phasing out traditional magnetic swipes in favor of new secure EMV cards. Apple Pay and its NFC-based technology will not be affected by the EMV switch, scheduled to occur in October.

LoopPay has explored adopting a token system that would authorize a transaction without allowing the merchant to receive the actual payment information.

The LoopPay acquisition‘s compelling aspect is that Samsung would not need to sign up issuers or merchants to support LoopPay, given the broad use of its technology.

A challenge to broader adoption may lie in many countries’ common practice of having a cashier take a magstripe card from a shopper and then swiping it.

Samsung’s staking so much on LoopPay is disappointing, as it suggests the electronics company did not have much of a strategy from the outset, according to John Gessau, director of product management for ACI Worldwide, which powers electronic payments for 21 of the 25 largest banks and over 300 of the world’s leading retailers.

In December, reports surfaced that Samsung was in talks with LoopPay to introduce its own mobile payments solution in 2015, one that would conceivably be more widely available as LoopPay worked with legacy point-of-sale terminals.

Samsung’s interest points to the significant stakes involved, with in-store proximity payments expected to take off in the next few years.

Samsung will have its work cut out trying to catch up to Apple Pay.

Recent reports have Staples saying Apple Pay has become the leading payment method for the office products retailer in its iOS applications.

Thirty percent of Staples’ in-app purchases on iOS are coming from Apple Pay, according to Prat Vemana, vice president of mobile commerce for Staples, speaking at a panel in Seattle, Business Insider reported.

Adding partners
Apple Pay has continued to add partners, including a number of new banks, which will drive perceived value for consumers and encourage more banks as well as retailers to jump on board.

Capitalizing on opportunity in the magstripe space.

Apple Pay is rapidly building their stable of card issuers which will increase the perceived value for iPhone 6 owners as they recognize that their payment cards are included, said Thad Peterson, senior analyst at Aite Group, Atlanta. This in turn will increase pressure on merchants to accept Apple Pay as more and more of their customers become enabled.

“Samsung may be capitalizing on the opportunity in the magstripe space now, with the intent to roll out new capabilities,” Mr. Ranta said. “But in the meantime it’s disappointing to see Samsung staking so much in LoopPay’s current technology.”

Final Take
Michael Barris is staff reporter on Mobile Commerce Daily, New York