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Unlike the other mobile payment efforts, LoopPay focuses on mimicking a magstripe's magnetic pulse, creating a wireless signal that can be read by about 90% of existing merchant card terminals. However, LoopPay's technology simply shifts the expense from the merchant to the consumer, requiring the end user to purchase hardware that can cost as much as $90. Its hardware also doesn't fit into some phone cases.
"We have a challenge. We definitely have a challenge," said Greg Ewald, LoopPay's vice president of marketing, referring to the product's pricing. "We're really targeting early adopters at this stage."
But a pact with Samsung could address the LoopPay hardware's sticker shock. Although Ewald would neither confirm nor deny an arrangement with Samsung, he confirmed that the elements of LoopPay's technology (a small metal coil, transmitter, amplifier, processor, microcontroller and a secure memory module) could be built into a mobile phone.
Such an arrangement addresses one problem, but raises another: LoopPay's current business model includes hardware sales, which are one-time events, and integrating the components into the phone slashes any margin there.
LoopPay, which was founded in 2012, has few alternatives for drawing revenue from the consumer. There's no way to directly leverage purchase patterns for resale as LoopPay has no visibility into what people are purchasing. That also prevents revenue-sharing from those purchases.
Instead, LoopPay plans to offer merchants and manufacturers the ability to advertise within the app. Discounts and promotions could be sent to consumers, targeted by demographic segments. The company's terms of service already require consumers to consent to receiving advertisements to access certain of the wallet's capabilities.
LoopPay is also preparing to make an e-commerce play. As a practical matter, that could be a major asset as it could immediately allow automatedand more securee-commerce purchases from mobile devices. E-commerce sellers might also benefit from LoopPay's technology in that it mimics a card-present transaction, thus lowering the cost of acceptance if the e-commerce site also has an arrangement to process in-store purchases.
The security offered by the service uses random questions from credit bureau information to try and authenticate customers at the time of setup. If that bureau data is incorrect, problems could crop up. Also, it looks for a reasonably close match on the name to increase the chance that it's the actual card-holder.
Of much greater security potential is a deal being worked out with MasterCard to use its tokenization technology within LoopPay to replace sensitive card account data with a secure value called a token. Ewald said his team hopes to have tokenization available "by mid-2015," with the e-commerce move occurring "sometime this year."
LoopPay has other challenges to overcome. Its technology does not work with some older card readers, which have trouble handling plastic magstripe cards on the first swipe, too. It also doesn't work with machines that capture the user's card, such as ATMs and CRIND units at gas stations. (The user could force LoopPay to work at a gas station by placing a non-magstripe plastic card, such as a driver's license, into the slot to trigger the mechanical switch and then immediately hit the LoopPay button to transmit the magnetic pulse.)
LoopPay also has no way to support EMV-chip card payments. The U.S. has a deadline of October 2015 to adopt EMV security; companies that do not comply face a shift in fraud liability. But even if most companies meet that deadline, they will still have to support magnetic-stripe payments as a fallback.
"There's always going to be magstripe. It takes years for payment infrastructure to evolve," Ewald said. "We're leveraging that installed infrastructure."
The system uses the phone's camera to grab data from non-magstripe cards such as some stored-value cards, loyalty cards, driver's licenses and related items, but given the way it replicates the pulse, it can't use the camera to capture enough data to create its pulse.
Randy Vanderhoof, who as executive director of the Smart Card Alliance is one of the key spokespeople supporting EMV, sees the matter very differently. Vanderhoof had nice things to say about LoopPay, but argues that its lack of EMV support will greatly shorten its lifespan.
"I think it's an interesting technology and it's certainly going toif it ever reaches consumer adoptionfill a gap. But I think it has to really embrace EMV technology to make a difference," Vanderhoof said in a phone interview. "The real play is when you incorporate it into the handset. Do issuers want to look backwards, with more magstripe transactions?"
Ewald explains that LoopPay's plans for tokenization accomplish the same security goal as the card networks' planned EMV migration. Vanderhoof says only time will tell if this is true.
"Something different with a tokenized transaction through the magstripe channel of the point of sale versus doing it through the EMV channel? It's unclear to me how it will carry the same security weight," Vanderhoof said.
As for Ewald's position that magstripe will be dominant for the U.S. for a very long time, Vanderhoof pointed Visa's forecast that 71% of credit cards and 41% of debit cards would be
EMV "will exceed the majority of transactions next year," Vanderhoof argued. "And it's the acquirers and the processors and the brands and the issuers who are making that happen. The opportunity (for a magstripe-based mobile payment offering) is pretty limited in time."
