PayPal acquires Paydiant, puts NFC into its Here readers

PayPal is buying Paydiant, a startup that provides the mobile payments and loyalty technology used by many big-name retailers use in their apps, for an undisclosed amount. PayPal also announced on Monday that it plans to start selling a near-field communications (NFC)-enabled version of its Here credit card reader, which will allow its merchants to start processing Apple Pay, Google Wallet and contactless card transactions.

Paydiant is the behind-the-scenes technology used by companies like Subway and Capital One to put payment options, loyalty programs and digital coupons into their apps. But its biggest customer is MCX, a consortium of big retailers including [company]Walmart[/company], [company]Target[/company], [company]Sear[/company]s, [company]Wendy’s[/company], [company]Exxon[/company] and [company]CVS[/company] that is launching its own digital wallet called CurrenC. You’ve probably MCX’s name pop up in the news lately as its members have butted heads with Apple for turning off NFC at their registers, effectively blocking Apple Pay for some of the biggest retail stores in the country.

At Mobile World Congress in Barcelona, I spoke briefly with PayPal’s senior director of global initiatives Anuj Nayar, who said Paydiant gives the payments giant another set of commerce tools to offer its merchants customers. While Paydiant focused on larger retailers, PayPal will be able to scale its products down to its vast network of small retailers. “We can create a digital loyalty program for the corner coffee shop,” Nayar said.

PayPal’s new NFC reader will be similar to the stand-alone point-of-sale terminal it launched in the U.K. two years ago. It has a numeric keypad with a slot for Chip-and-PIN card transactions and a Bluetooth radio to connect to a smartphone or tablet where PayPal’s Here app processes the transaction. The addition of NFC means it will accept contactless transactions from mobile wallets like [company]Apple[/company] Pay, [company]Google[/company] Wallet and eventually Samsung Pay (PayPal’s own mobile wallet doesn’t use NFC). It will also take payments from contactless credit cards popular in many countries outside the U.S., which is why PayPal first will roll out the terminal in the U.K. and Australia this summer and then launch in the U.S. later this year, Nayar said.

When it does come to the U.S., the reader will pull double duty as PayPal’s next-generation credit card reader. This year, retailers are beginning the transition to EMV cards, which use smart chips instead of magnetic stripes to transmit encrypted data at payment terminals. The familiar triangular PayPal Here reader in the U.S. accepts magnetic stripe transactions only, and I assume it will be gradually be phased out as more merchants move over to EMV payments.

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Samsung Pay has all the tools it needs to surpass Apple Pay

A lot of the features in the new Galaxy S6 and S6 Edge, like curved edges and glass-and-metal design, are examples of Samsung playing catch-up on the latest smartphone trends, but Samsung’s new mobile payments app stands apart. Apple and Google may have brought their contactless payment technologies to the market first, but Samsung Pay fills in sizable gaps that Apple Pay and Google Wallet have in their services.

Samsung Pay uses both near-field communications (NFC) and magnetic secure transmission (MST) technology from LoopPay. That means that it can not only make the same secure contactless transactions that [company]Apple[/company] Pay can, but it can also make “swipe” purchases on the vast majority of older payments terminals that haven’t upgraded to NFC. Samsung has also retooled the new smartphones’ fingerprint sensors so they work with a press rather than a swipe, making it easier to initiate a purchase with a thumb tap.

Just as significant as the technology is Samsung’s broader financial ecosystem. It’s brought [company]MasterCard[/company] and [company]Visa[/company] to the table as partners along with four of the largest card-issuing banks: [company]JP Morgan Chase[/company], [company]Bank of America[/company], [company]Citi[/company] and [company]US Bank[/company]. (At the launch event, Samsung CEO JK Shin said these were just a few of the financial deals Samsung had signed.) Banking deals were one of the key reasons Apple Pay was a big initial hit, as consumers could load almost any of their existing debit and credit cards into the iPhone’s contactless wallet.

The new Galaxy S6

The new Galaxy S6

For Samsung, those bank deals are particularly important because the biggest selling point for its mobile wallet is that it will work on a far larger variety of terminals in the U.S. than Apple Pay or any other NFC-only payment app. If the banks hadn’t gotten on board Samsung wouldn’t have been able to make that argument come this fall.

The U.S. is finally making the leap to EMV credit cards, which use a smart chip to send encrypted data to a payments terminal. It’s a much more secure technology, and Samsung’s MST technology can’t emulate it the way it can the numbers stored on the mag stripe of credit. But with the banks apparently lining up to work with Samsung Pay, that’s not a problem Samsung has to worry about anymore. The banks can simply pass that encrypted card data from the cloud to a secure element in the Galaxy S6 or S6 Edge, which the phone then passes either through its NFC radio or magnetically, depending on which technology is available at the terminal.

Samsung Pay will not only make both “smart” and “dumb” transactions, so to speak, but it has the potential to turn what would normally be insecure static payments into more secure, dynamic As LoopPay co-founder and now Samsung employee Will Graylin recently explained to me, MST can send dynamic data through a magnetic read head designed only to take static data. The terminal thinks it’s just getting a regular credit card number, but Samsung Pay could send out a prefix code that alerts the payment processor that the numbers it’s about to receive are EMV cryptograms. Samsung Pay can use the same method to send tokens — one-time-use numbers supported in the newest payment technologies — through even the oldest, junkiest card readers.

An earlier version of LoopPay's MST technology. Instead of living in a phone sleeve, LoopPay will be embedded directly into new Galaxy S-series phones.

An earlier version of LoopPay’s MST technology. Instead of living in a phone sleeve, LoopPay will be embedded directly into new Galaxy S-series phones.

MasterCard chief emerging payments officer Ed McLaughlin explained to me that the potential implications for the payments industry could be big indeed because the banks and consumers will no longer be tied to a particular type of transaction based on a merchant’s hardware.

“The type of payment you make is a business decision, not a technology one,” McLaughlin said. “This is a clear way to work with older [payment terminal] stock out there.”

While Samsung seems to have minded all of the technical and financial details, we’re going to have to see Samsung Pay in action before we can levy a final judgment. I was at the Galaxy S6es’ big launch at Samsung’s Unpacked event at Mobile World Congress on Sunday, and while Samsung executives showed a video of Samsung Pay in action onscreen, there didn’t appear to be a live demo at the event. None of the new Galaxy S6 and S6 Edge phones I played with at Unpacked even have the app installed.

If Samsung Pay launches with a bang this summer, Samsung will have a compelling mobile wallet that can rival Apple Pay in many ways, but it will only have that advantage for so long, especially in the U.S. As merchants upgrade their payment terminals for EMV, they’re also upgrading them to support NFC. Within a year or two, NFC transactions could become the norm rather than the exception.

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Google buys Softcard, teams up with carriers on mobile payments

Google and the mobile carriers have long been at odds over mobile payments, but faced with the runaway success of Apple Pay, the two rivals have become friends. AT&T, Verizon and T-Mobile are selling their mobile wallet joint venture Softcard to Google for an undisclosed amount, Google and Softcard revealed on Monday in separate blog posts, and they have agreed to pre-install Google Wallet on their Android smartphones starting this fall.

That’s quite a full circle to arrive at, considering that for the last three years the three operators actively blocked Wallet from their devices in blatant protectionism for their own mobile payments service Isis. The problem was that Isis, which changed its name to Softcard last year, was slow to arrive to market, meaning few Android phones had access to any kind of near-field-communications (NFC)–based wallet.

That left the nascent smartphone contactless payment market stillborn in the U.S. until [company]Apple[/company] stepped in with Apple Pay. Apple Pay is not only available on every iPhone 6 and iPhone 6 Plus (as well as the forthcoming Apple Watch), but it also built in a much bigger ecosystem for its service, bringing card-issuing bands and online merchants to the table that neither [company]Google[/company] nor Softcard managed to attract.

Those two also-ran wallets are obviously feeling Apple’s heat, so instead of battling it out in the Android space, they’re teaming up, which should make banks, merchants and especially Android-owning consumers happy. It probably would have made more sense to sign this deal a year earlier, though, as other companies are trying to fill the vacuum the Isis-Google war created with their own Android wallets.

Samsung last week bought universal digital credit card startup LoopPay, which uses an alternate technology to NFC that gives it access to most point-of-sale terminals in the market. As I wrote last week, Samsung still has to add a few missing pieces to its payments puzzle – most notably direct partnership with the banks – but there’s a good chance we might see the first Samsung contactless payments app debut in the Samsung Galaxy S6 when it is unveiled at Mobile World Congress next week.

Amazon closes out its mobile wallet trial after 6 months

It looks like Amazon’s diapers weren’t the only product the e-commerce giant retired Wednesday. The company has shut down its mobile wallet beta, which allowed Android and Fire phone users to store loyalty and gift cards in a digital billfold.

In a statement given to CNET, [company]Amazon[/company] spokesman Tom Cook said the e-commerce giant learned plenty from the six-month trial, and that it would apply those lessons to future Amazon products. But he didn’t say if Amazon had plans to bring its wallet back as a commercial product or if it would revisit the concept of smartphone payments in the future.

[company]Apple[/company] Pay has simultaneously reinvigorated the market for contactless and mobile payments while putting a lot of pressure on competing technologies. [company]Google[/company] Wallet has seen a big uptick in near-field communications (NFC) transactions, but it’s also been scaling back Google Wallet’s other features such as Digital Goods, which let you use its app to buy stuff outside of the Google Play store.

[company]Softcard[/company] — the carrier NFC payments system formerly know as Isis — just laid off 60 employees, and the latest rumors have it that Google and Softcard want to merge their wallet efforts. Meanwhile MCX, a smartphone billfold effort backed by the country’s biggest retailers, is fighting (and losing) a public relations war with Apple over its merchants’ resistance on accepting Apple Pay.

It might be tempting to view the closure of Amazon Wallet as the company conceding victory to competing smartphone payment technologies, but I think we would be reading too much into its actions. Amazon Wallet was never really an aggressive move into retail commerce like Apple Pay or Google Wallet. It never let you store credit cards or make a secure payment at the register. Instead, it was basically a way to store a bunch of loyalty and gift cards in a digital format, so merchants can scan in a bar code from your phone rather than a piece of plastic.

If Amazon is really going to go after the smartphone payments space, I imagine it would launch a much more fully featured wallet in the future. And if it doesn’t, Amazon got a lot of good data from beta that it could apply to its other mobile payments efforts, particularly the mobile point-of-sale credit card reader it just launched to compete with Square.