Mobile recap: LoopPay vs. Apple Pay; new Pebble; LG Watch Urbane

Samsung has a new way to fight back against Apple and it has nothing to do with Google. This week, Samsung bought LoopPay; a company that adds mobile payments to phones using a magnetic field. Early reports and rumors about Samsung’s Galaxy S6 handset — expected to debut on March 1 — suggested a LoopPay tie-in.

Loop mobile payments

Google may not like it, but the acquisition gives Samsung a digital payment solution of its own, although the company can certainly still offer [company]Google[/company] Wallet on its Android devices. Google’s Wallet, four years in the making, hasn’t really resounded with consumers though. I’ve been using the service on and off since 2011 with Android phones that have an NFC chip inside them but retailers have been slow to adopt or support Wallet. That’s in stark contrast to [company]Apple[/company] Pay, which is a successful twist on the same NFC technology.

While LoopPay will work for now in the U.S. by spoofing the magnetic card stripe on current payment cards, Samsung will have to adopt it for the upcoming change in payments here. Samsung will need to create bank partnerships for EMV payments; essentially, we’re getting a payment card upgrade here later this year, which will require LoopPay to work with chip-and-PIN cards. LoopPay knew of this transition, so it’s not completely in the dark; we’ll see how it handles the change in a few months.

pebble action

Before then, we may have a new smartwatch or wearable device from Pebble. The company, which ran a hugely successful Kickstarter campaign in 2012 for its current smartwatch, is expected to announce something on Tuesday of this week. That’s based on a countdown timer that’s been busily ticking away since Thursday.

While we have no idea what Pebble is counting down for, the company did say earlier this month that it would be launching new hardware this year, along with a unique software interface. Perhaps we’ll get a glimpse of a new watch this week; hopefully, it’s not just a new band for the existing Pebble.

lg watch urbane gold


Even if Pebble does launch a new smartwatch, it’s going to compete with more Android Wear devices. The latest, LG’s Watch Urbane, hides its smarts in what looks like a very traditional analog timepiece. The stainless steel Urbane will be available in gold or silver finishes, uses the same 1.3-inch circular plastic OLED touchscreen display as the existing G Watch R and is aimed for the upscale smartwatch market.

Why Samsung is right to bypass Google Wallet for LoopPay

Don’t look now, but there may be discontent between Google and one of its key Android partners: again. On Friday, the Wall Street Journal reported growing tensions between Samsung and Google.

It’s not the first time we’ve heard that the relationship is strained. So what’s the latest issue? Samsung’s purchase of LoopPay, which gives it a mobile payment platform of its own.

LoopPay Card Case Transaction

Although neither company would likely admit publicly to any friction, there’s plenty of reason to think it’s there.

Google was reportedly not happy when Samsung decided to use its own Tizen software to power smartwatches, for example. Samsung later added Android Wear options to the marketplace but pushed forward with its own Tizen phone in December to further break away from Google’s handset control. Surely Samsung wasn’t pleased when Google bought one of its partners in Motorola, even though the company put out canned statement supporting [company]Google[/company].

And now we have the LoopPay deal, giving Samsung its own mobile payment platform even though Google has Wallet available for Android partners.

Google Wallet

I can see why Google might be upset, particularly since Samsung has no obligation to offer LoopPay to its peers in the Android device market, Google gets no payment data from LoopPay transactions, and because LoopPay already works with an estimated 90 percent of all card payment terminals. The product uses magnetic fields to send card data from a phone to replicate the information stored on the magnetic stripe of a credit or debit card.

Here’s the thing: I don’t blame Samsung in this case one bit.

Google itself could have bought LoopPay and made the technology available to all of its Android partners at any time in the past. Instead, it’s been working on Google Wallet for several years but from the outside looking in, and it has been an inconsistent effort that has faced several roadblocks: Lack of worldwide support, new terminals needed and carrier pushback along with competing carrier payment solutions, for example.

Image: Softcard

Put another way: Why shouldn’t Samsung be looking out for itself if Google’s own Wallet product isn’t widely adopted, isn’t well-known by the Android phone users and isn’t marketed well? If Google really wants to rally the troops with a common mobile payment system, it needs to evolve Wallet, something the Journal said it will do this year, possibly even paying carriers for Wallet to be prominently displayed on Android phones.

Regardless of Google’s plans to put Wallet back in the spotlight, there’s no guarantee that Samsung will be in a better position later this year. Spoofing the magnetic stripe of a credit or debit card will work for now, but how will Samsung handle the coming transition to smartchip or EMV payment cards in the U.S. later this year? It’s too early to say, but LoopPay has told my colleague Kevin Fitchard that it has already started talks with banks to firm up support and partnerships for EMV payments, for which it has a solution in mind.

As critical I can be towards Samsung for creating a dizzying array of confusing product lines combined with cramming too many features in devices, I have to give the company credit here. Samsung is watching [company]Apple[/company] erode its smartphone sales crown on the one hand, as it quickly gains Apple Pay adoption on the other.

Apple Pay at the register

Samsung can’t combat that with Google Wallet in its current state, so what’s the alternative to going it alone? Sure it could wait for Wallet to gain more traction but Google has had since the 2011 debut of Wallet for that happen. You can’t blame Samsung for trying to take the lead when Google has faltered in mobile payments.

Why it matters that the federal government will accept Apple Pay

Apple CEO Tim Cook spoke before President Barack Obama at a cybersecurity summit at Stanford University on Friday, and he was able to slip a few major Apple Pay announcements into his talk reiterating his commitment to privacy.

There were two big Apple Pay developments from today’s talk: First, Apple Pay will be “available for many transactions with the federal government.” Cook specifically cited paying for admission at national parks, but it’s not hard to imagine Apple Pay support expanded to the gift shop at the Smithsonian, for instance, or for foreigners paying fees for visa applications. The federal government will begin to accept Apple Pay starting in September, but whether you will be able to use your iPhone to pay Uncle Sam on September 1st probably depends on how the government procures NFC-enabled point-of-sale systems, so it could take a while.

The second announcement is a much bigger deal: In a press release, the White House announced that it was was working with big financial networks to enable Apple Pay for federal payment cards — specifically those for Social Security payments and veteran’s benefits.

Social Security payments used to come through the mail, in the form of a check. But in 2013, a new policy went into effect requiring those receiving benefits to receive payments electronically. That leaves two choices: Signing up for direct deposit, or receiving a pre-paid debit card called DirectExpress that’s automatically refilled, which is the option for those without a bank account. If Apple Pay were to work with DirectExpress debit cards, it would mean that pensioners could pay for their morning coffee at McDonalds with their iPhones.

The fact sheet also says the federal government would like to get Apple Pay working with GSA SmartPay cards, but unless you’re a government employee expensing travel, you’re unlikely to have one of those.

According to the Social Security Administration, there are currently over 55 million Americans receiving Social Security benefits worth over $71 billion in aggregate per month. Clearly, it’s a big market. And although not every dollar coming in to beneficiaries through Social Security will be spent through Apple Pay, even a small chunk of that is massive.

Cook and Obama’s announcement reflects that Apple is willing to further integrate itself into our daily lives, even if it has to work with slow-moving institutions like the federal government to do it. At the end of his talk, Cook mentioned that he could see even official documentation, like passports, being accessible through smartphones:

“We can imagine a day in the not-so-distant future when your wallet becomes a remnant of the past, your passport, your driver’s license, and other important documents can be digitally stored in a way that’s safe, secure, and easy to access,” Cook said.

One big advantage the iPhone platform has over Android for government applications is that Apple controls and implements trusted execution environments in its own chips, which it calls its Secure Enclave and Secure Element. The Secure Enclave helps keep the user’s fingerprint and other critical information separate from the main operating system, helping prevent it from being hacked or spoofed, is a big reason why Apple Pay has a higher degree of tokenization than Google Wallet. On Android devices, the secure element is implemented by chip companies like Qualcomm or ARM, as well as manufacturers like Samsung, meaning that Google simply has less control over applications — like payments — where security is the top priority.

By tacitly endorsing Apple Pay at a cybersecurity conference, the White House has given Apple its security seal of approval. Considering governments won’t accept digital documents without first ensuring the software that powers them is secure, that’s a big deal.

Imagine a hacker stealing your passport and spoofing it on his own device. That wouldn’t just be annoying, that could be dangerous on a national security level. As we increasingly carry important credentials on our devices — the state of Iowa is going to start issuing smartphone driver’s licenses this year — security becomes paramount. If Apple has the inside track on getting government approval for its smartphone security, as our wallets become part of our devices, then government applications could come to iPhone first, and Android second.

Now boarding: JetBlue accepting Apple Pay on flights

On your next JetBlue flight, you’ll need your photo identification and boarding pass but you can leave the credit cards behind. That’s because the airline will be the first to accept Apple Pay in-flight for any purchases made on board select flights, starting next week, according to USA Today‘s Ed Baig.

Flight attendants will use specially-equipped iPad Minis to accept payments, Baig reported on Tuesday. The tablets will have small card reader attachments for magnetic card swipes so Apple Pay won’t be an exclusive payment type on the planes. When Apple debuts the Apple Watch in April, [company]JetBlue[/company] will also accept payments from customers wearing one; [company]Apple[/company]’s smartwatch includes an NFC chip, just the way the new iPhone 6 and 6 Plus handsets do.

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This development isn’t all that surprising, because airlines have been adopting Apple technology for several years. United, for example, ordered 11,000 iPads in 2011 after the FCC approved the devices for use in lieu of paper manuals and charts. For its part, JetBlue has been pushing forward with technology in general for its passengers, last year launching its in-flight Wi-Fi service with dedicated 140GB satellite links.

I’m interested to see how well the Apple Pay experience will work for those sitting near a window on a JetBlue flight. It’s easy to pass a credit card to the flight attendant from there, less so to hold your phone across the face of two passengers while making sure your thumb is on the home button of your handset. It might even be trickier with an Apple Watch, although the attendant could always pass the iPad Mini to you.

That ergonomic challenge aside, I’m glad to see the old handheld POS terminals with integrated printers (that only work some of the time) going away in favor of digital payments.

Apple earnings: 74.5M iPhones sold, record-breaking $18B profit

There was a lot going for Apple in its most recent holiday quarter. As the first quarter with the popular iPhone 6 on sale for the entire period, many expected Apple to boast eye-popping earnings, and Apple’s first fiscal quarter has traditionally been its best. Expectations were surpassed: Apple on Tuesday reported first quarter earning results of $74.6 billion in revenue and net profit of $18 billion.

In terms of device sales, that breaks down to:

  • 74.5 million iPhones, up from the 51 million sold a year ago.
  • 21.4 million iPads, down from the 26 million a year ago.
  • 5.5 million Macs, up from the 4.8 million a year ago.

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Apple’s earnings beat Wall Street’s already-lofty expectations. Analysts were generally expecting total revenue around $69 billion, and Apple’s own guidance was in the range of $63.5 billion to $66.5 billion. It’s also a big increase over last year’s holiday quarter, in which Apple reported $57.59 billion in revenue.

Earnings per share works out to $3.06. Apple declared a cash dividend of 47 cents per share.

The 74.5 million iPhones sold are a record for Apple, nearly 46 percent higher than the previous quarterly record set last December. Fortune-polled analysts predicted 66.5 million iPhones sold.

“This volume was hard to comprehend,” CEO Tim Cook said during a conference call to discuss the earnings. “34,000 iPhones sold per hour, 24 hours a day, every day of the quarter.”

Clearly, the iPhone is a juggernaut, and the new models with larger screens have only increased demand for it. Cook mentioned that he believes the number of switchers from Android to an iPhone 6 were as high as they’ve been for the previous three years. The proportion of Apple’s revenue coming from the iPhone has also never been higher:

[dataset id=”910132″]

A key number to watch is Apple’s gross margins, or the proportion of revenue after manufacturing costs. Apple reported that its gross margins were 39.9 percent, which is up from 37.9 percent in the same quarter last year. It’s difficult to tell if the larger margins are due to the more expensive iPhone 6 Plus or the newly less-expensive 64 GB storage upgrade, but the average selling price for the iPhone was $687, which is nearly $50 more than last year’s holiday quarter. Cook didn’t elaborate on the sales mix between iPhone 6 and iPhone 6 Plus beyond broad strokes.

“iPhone 6 was the most popular iPhone last quarter,” Cook said. “But to sell 74.5 million they were all popular. There is clearly a geographic preference, some [regions] skew much higher on their preference to iPhone 6 plus to other [regions], it’s something that’s not consistent around the world.”

It’s no secret that iPad sales have been dropping year-over-year for the past few quarters, but this earnings report reflects a full quarter selling new models released in October, including the iPad Air 2 and the iPad Mini 3, but total unit sales were still down nearly 17 percent from the year-ago period. Cook has previously said that the lagging iPad sales were due to a longer upgrade cycle, and he reiterated that point on Tuesday.

Apple reported 5.5 million Macs sold this quarter, a 14 percent increase over the year-ago period despite the two newest Mac models released in October — the iMac with Retina Display and the Mac Mini — being niche products. However, it wasn’t a big jump from the prior quarter, which also saw 5.5 million Macs sold thanks to the back-to-school bump.

However, the average selling price for Macs was up $58, thanks to the new iMac with Retina Display which retails for $2500 or more.

[dataset id=”910155″]

We expected sales in China to make an impact in these earnings. Apple reported that revenue in the Greater China region, which includes Taiwan, was $16.1 billion, or up 70 percent from the year-ago period. CFO Luca Maestri partially attributed the “particularly impressive” Greater China revenue to the strong dollar.

Maestri said Apple would reconsider its capital return program in April, which has included $57 billion in share repurchases in the past year. Apple still holds $178 billion in cash.

Apple also issued guidance for next quarter. It expects revenue to be between $52 billion and $55 billion, a “significant revenue increase despite foreign exchange headwinds” over the $46 billion in revenue Apple posted in the year-ago period. Next quarter will see the launch of Apple’s first wearable computer, Apple Watch. “Apple Watch will ship in April, right on schedule,” Cook said.

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This post was updated several times as more information became available.

Apple Pay added to 200,000 self-service machines in the U.S.

Add another 200,000 locations to the list of where you can use Apple Pay. USA Technologies announced Tuesday a national rollout of Apple Pay support on “coffee brewers, vending machines, kiosks, laundry equipment, parking pay stations and other self-serve appliances” that the company provides payment technologies for in the U.S. Apple Pay is rolling out at a fast pace, helped in large part of course by the many iPhone 6 and 6 Plus phones that the company has sold since September. Later today we’ll know how many handsets Apple sold in its most recent quarter, but I’ll place my guess now: around 68.5 million of them, with most of them sold in China, even though Apple Pay isn’t yet available there.

Apple Pay – Forecasting consumer Adoption

For several years, mobile payments in physical locations has been stalled here in the U.S. and – for the most part – around the world. Will Apple Pay become the spark for consumer adoption of mobile payments at retail outlets?

My short answer – not until mid to late 2016.

Here’s why:

  • Minimal market penetration of iPhone 6 and Apple Watch Part one of the formula for Apple Pay market adoption is to understand how many Apple Pay-capable devices will be in the hands of U.S. consumers in 2015. Only iPhone 6 devices will be able to make physical location payments. According to Comscore, 167.9 million Americans owned a smartphone in early 2014, 69.5 million of them iPhone users. Assume most iPhone 6 users are replacing older iPhones. Smartphone turnover for U.S. is running around 18-24 months, so let’s say at best, there will be just over 20 million iPhone 6 users in the U.S. at the end of 2015 (30% of all iPhone users). Piper Jaffray is forecasting Apple will sell between 5-10 million Apple Watches globally in 2015. If will assume half of those will be sold in the U.S., this means the total number of U.S. consumers with Apple Pay (physical location)-capable devices in their hands at the end of 2015 will be about 25 million. Let’s generously assume that 70% of them will be active users at the end of 2015 – 18.9 million. There are about 205 million adult Americans, so the likely number of Apple Pay users at the end of 2015 will be just over 9% of adult Americans.
  • Minimal market penetration of contactless payment terminals. Analysts estimate that only 10-20% of U.S. merchants currently have contactless terminals, which are required for Apple Pay or other contactless payments to work. Help is on the way in the form of a mandate for Visa-accepting merchants to have EMV/contactless payment terminals in place by October 2015.  However, the American Bankers Association believes only 50% of U.S. retailers will by compliant by the October 2015 deadline, and not all contactless payment-capable merchants will be an Apple Pay merchant. That requires a specific agreement directly with Apple.
  • For contactless payments, some merchants are more important. To spur market adoption, it’s not the total number of merchants who are capable that is most important. It has to be the right kind of merchant, which is one that handles a lot of everyday purchases – groceries, convenience stores, gas stations and fast food. It is also important for Apple and other mobile wallet players to court the merchants with the most retail outlets, which creates greater impact for a given amount of effort. Apple has secured agreements with three of the top 10 retailers as ranked by total number of retail outlets (Subway at #1, McDonald’s at #3 and Walgreens at #7), however, franchise-heavy retailers such as Subway and McDonald’s may not have as much say in whether the franchisee installs contactless terminals. Key players Apple should pursue to drive consumer adoption include Yum Brands (Taco Bell, KFC, Pizza Hut), Starbucks, 7-11, Burger King and Wendy’s. Mobile wallet players can drive consumer adoption by securing contactless payment commitments from the top 12 retail players (ranked by number of locations). Those 12 represent 50% of the total retail outlets of the top 100 U.S. retailers.

By mid to late 2016, Apple’s replacement cycle of iPhone 6 and forthcoming Apple Watch numbers will bring significant momentum to the marketplace in terms of consumers with Apple Pay-capable devices in hand. This should help spur merchant adoption of contactless terminals and create a symbiotic relationship for mass market adoption of Apple Pay, and perhaps Google Wallet and Softcard as well.