Will Samsung’s mobile wallet plans work? We’ll know in 7 months

Samsung has entered the mobile payments fray with its acquisition of LoopPay, giving it the technology to turn its smartphones into wireless credit cards that can purchase goods and service with a wave of the wrist. LoopPay is clearly Samsung’s answer to Apple Pay, but there’s still one missing piece from its payments puzzle.

With LoopPay’s technology the consumer electronics giant now has all of the technical tools to take on Apple Pay, but Samsung still needs to form direct partnerships with the card-issuing banks. If it doesn’t, then the upcoming transition to new chipped smart cards will be awfully rough on its contactless payments technology.

Today LoopPay’s technology relies on what is essentially a spoofing of the credit card. It records the credit card number off of your plastic’s magnetic stripe, and when its fob or smartphone sleeve is waved over a payment terminal, it transmits that number through a magnetic field, emulating the physical card swipe. The technology works at nearly all point-of-sale terminals today, and I can vouch for its effectiveness. I’ve used a Loop fob to buy coffee at Starbucks and tools at my local hardware store with no difficulty. As Samsung incorporates this technology into its phones, it will work the same way.

The problem is that this kind of static magnetic transaction is going to be phased out of the U.S. retail industry starting in October (it already has been in many other regions of the world). The U.S. is adopting EMV (the name comes from the initials of backers Europay, MasterCard and Visa), which will replace magnetic cards with smart chip cards that store encrypted data that LoopPay won’t be able to emulate — at least not without the cooperation of the banks.

LoopPay's most recent iPhone 6 sleeve with detachable "card" module

LoopPay’s most recent iPhone 6 sleeve with detachable “card” module

LoopPay founder Will Graylin and Samsung’s head of mobile payments Injong Rhee assured me in an interview on Thursday that both LoopPay and Samsung have been in discussions with multiple banks and those partnerships are forthcoming. They also said that LoopPay’s technology is already optimized to handle EMV payments as soon as those first bank deals are signed.

I have no reason to doubt Graylin and Rhee, since even before the acquisition LoopPay already had the backing of at least one credit card powerhouse — Visa was an investor — and Samsung itself wields enormous clout. If it commits to making a Loop-powered wallet a key feature in its smartphones, then banks will want to come to the table, just as they came to the table with Apple Pay.

But Graylin and Rhee wouldn’t offer any details on the specific banks they’re talking to or any timeline for when those deals would be in place. That’s worrisome because the clock is ticking. If those deals don’t come down by October then Samsung may find itself with a mobile wallet that increasingly doesn’t work.

What happens in October

This year, banks will start replacing your plastic with chipped cards, and by the end year MasterCard expects that half of all U.S. credit cards will support chip-and-PIN transactions. Meanwhile, U.S. retailers are replacing their point-of-sale terminals with new card readers that accept EMV transactions.

The transition to EMV in the U.S. was originally expected to be slow – and it will take years before that last small merchant upgrades its hardware – but recent big security breaches like the one affecting Target have lit a fire under the major retailers, explained Osama Bedier, a long-time veteran of the mobile payments space. Bedier founded and is now CEO of payments terminal maker Poynt. Previously, he ran [company]Google[/company] Wallet from its launch until 2013, did product development at PayPal and is an advisor to and investor in LoopPay competitor Coin.

By the October deadline, the top 100 biggest retailers in the U.S. will accept EMV payment, accounting for 40 percent of all in-store retail transactions, Bedier said. Why the hurry? If they don’t, they’ll be liable for any fraudulent transactions made on chipped card at their stores.

Every point-of-sale terminal maker is developing an EMV reader, including Square

Every point-of-sale terminal maker is developing an EMV reader, including Square

That’s a huge shift in the U.S. retail landscape, but LoopPay and other digital credit card makers like Coin, Plastc and Swyp like to point out that even new chipped cards will continue to sport magnetic stripes so they will be able to load them into their universal cards. Conversely, even new payments terminals will still have magnetic stripe readers, so every merchant will technically be able to accept a transaction with their devices.

The infrastructure will remain in place for retailers to continue accepting their digital cards, so everything is hunky-dory, right? Here’s the problem: just because a merchant can technically accept a mag stripe transaction doesn’t mean they will.

EMV transactions are more secure because they use cryptograms instead of the numbers printed on your card face. When digital card holders start sending that insecure static data over payment networks instead of using the encrypted chip on their physical cards, the banks will notice, and a certain point they’re going to start rejecting purchases.

“It all depends on how long the grace period is,” Bedier said. “It could be three months. It could be six months. But the card issuers will start declining transactions.”

Samsung’s opportunity

The key for any of these universal card makers is to demonstrate there’s enough utility and demand for their technology that the banks will gladly climb on board, Bedier pointed out. And here’s where Samsung has a big advantage.

On its own, LoopPay was a small company selling a niche product. But with the might of Samsung behind it, it has enormous advantages over its digital wallet competitors, who are mainly startups trying to crowdfund their products. If Samsung were to make a big commitment to embedding LoopPay’s tech in all of its forthcoming Galaxy smartphones and its wearables, or if Samsung created a detachable phone module that you could hand to a waiter or sales clerk, then the banks would likely eat it up. The banks want to offer their millions of Android customers an alternative to [company]Apple[/company] Pay.

Could LoopPay's technology make it into the Galaxy Gear?

Could LoopPay’s technology make it into the Galaxy Gear?

Furthermore, Samsung would have much larger potential retail appeal than Apple could ever hope to achieve any time in the near future. Graylin explained that LoopPay can route secure EMV data through the mag stripe reader, effectively turning a static transaction into a dynamic one. That means LoopPay could process EMV transactions at any terminal, as it wouldn’t be restricted to working with chip-and-PIN readers or systems with near-field communications (NFC) radios, which is the big limitation of Apple Pay.

With the banks’ cooperation, Samsung could also go beyond the EMV standard to offer tokens – temporary credentials good for only one or a limited number of payments – just the way Apple Pay does. Since LoopPay would be connected to the cloud through the Samsung mothership, it could constantly update its encrypted credit card data from the banks.

“I think we’re going to offer a very unique experience,” Graylin said. “I think people will soon see that.”

So over the next seven months we shouldn’t just be looking out for announcements on how Samsung will incorporate LoopPay’s technology into its products. We should also be watching for the specific banking deals Samsung signs. If it gets enough of them quickly, Samsung could find itself with a mobile wallet that could rival Apple Pay. If it doesn’t, Samsung’s fledgling mobile payments plans could wind up buried in the same heap as Google Wallet and Softcard.

Google said to be testing a point-of-sale system called Plaso

Google Wallet may not have been the hit Google had hoped, but according to a news report, the Silicon Valley giant may try to breath new life into its mobile payments business by tackling not just the digital billfold, but the digital cash register as well.

[company]Google[/company] has been testing new retail point-of-sale software that works on Android or device or integrates with a store’s existing payment processing system, according to a new report from The Information. The service is called Plaso – pronounced “Play-So” – and it allows customers to pay for goods and services by giving their initials to the sales clerk at the register, The Information’s unnamed sources said.

If that sounds like the failed Square Wallet, you’re right. Plaso appears to be using Bluetooth beacon technology to detect Google’s digital payments apps on smartphones physically in the store or near check out. Like Square Wallet, you would say your initials or name so the salesclerk can suss out which of the detected wallet belongs to you, and then I assume some kind of digital transfer of card credentials would occur either from the device or from the cloud.

While the Information wasn’t able to learn much about the technical underpinnings of Plaso, I would also assume other kind of verification would be necessary, whether it’s a photo of the buyer appearing on the merchant’s screen – which is how Square Wallet worked – or an some kind of authorization on the buyer’s phone such as a thumbprint ID or a PIN code. Otherwise the potential for mistakes or outright fraud is too high; of all the forms of identity theft, guessing someone’s initials is probably the easiest to pull off.

There’s no word on when Plaso might see commercial use, and as The Information points out, Google builds and tests many products that never see the light of day.

The report also has it that Square is building its own Android tablet-based payments terminal because it fears a newly retail savvy [company]Apple[/company] will shut Square out of the iOS universe. I find that a bit hard to believe, though.

Square and iPad are often considered inseparable – Square even optimizes new versions of its gadgets for the changing thickness of the iPhone – but Square’s core point-of-sale device, the Reader, already works with Android phones and tablets. In fact, about half of all Square merchants use an Android device. Square’s countertop system Stand only works with iPads today, so I can easily see it developing an Android variant. But I just don’t think it’s a defensive move against Apple.

Apple needs Square and Square needs Apple. Square provides the register, and for it to be successful it needs to accept as many forms as payment as possible, including Apple Pay. Apple is on the other side of the equation. It makes the credit card, and for the Apple Pay to be successful it needs to be accepted by as many merchants as possible.

If either company were to blackball the other, they’d only be shooting themselves in the foot. Sure, Apple is ambitious and it may one day seek to offer its own retail payments service to compete with Square, but if it did so it would then compete with [company]First Data[/company], [company]Chase[/company] Paymentech, [company]Verifone[/company], [company]NCR[/company] and all of the other giants of the retail payments industry as well. Apple built up a lot of goodwill with those companies when it launched Apple Pay, and that goodwill is one of the key reasons for Apple Pay’s initial success. Why just toss it out the window?

Swyp’s universal credit card launches just in time to become obsolete

Sunnyvale startup Qvivr is is building a universal credit card named Swyp , competing with the likes of LoopPay, Coin and Plastc, but it’s adding its own unique twist. Swyp is a “learning” credit card that tracks your habits in order to surface the right card at the right moment, without you have to flip through your digital wallet.

Like its competitors, [company]Swyp[/company] lets you load your plastic cards into a special digital card-sized device that can emulate the magnetic stripe on any credit, debit card or gift card. A retailer simply swipes the Swyp at a point-of-sale terminal just like a regular credit card. As with most of those universal cards, only one set of credentials is active at any given time, requiring you to select the appropriate card on your smartphone or on the device’s interface before any transaction.

But Qvivr claims it has developed background smarts that can make that selection for you. Its algorithms analyze your purchase behavior, so for instance it knows to use your gas card at the filling station or your debit card at the grocery store. Qvivr said Swyp can also work on schedules, prioritizing your business card during work hours and your personal card during evenings and weekends.

Swyp app

Qvivr said it will sell the device, along with its accompanying card reader and Android or iOS app, for $100, though its taking a limited number of pre-orders on its website for $49. In all, it’s a smart looking device with a few unique twists that would have been an ideal purchase for a gadget lover – if Swyp had launched a year ago.

Unfortunately, the timing for the Swyp card’s commercial release is this fall, which just happens to be when the U.S. retail industry is making a major shift toward smart cards using EMV technology. As Swyp relies solely on today’s magnetic stripe technology, it’s effectively beginning its journey to obsolescence before it’s even on the market.

I asked Qvivr about this, and the response I received was that Swyp will eventually tackle the EMV transition and that it has the technology to do so, but it’s not focusing on EMV in its initial card because “merchants won’t upgrade for a few more years.”

While it’s true the complete transition away from mag-stripe transactions will take a while, Qvivr is far downplaying the significance of EMV (which is named after its backers Europay, [company]MasterCard[/company] and [company]Visa[/company]). In Europe and other regions of world EMV transactions using chip-and-PIN and chip-and-signature methods are already standard. In the U.S., banks are issuing new chipped cards this year and many merchants – from big box retailers to Square sellers — are upgrading their point-of-sale gear to support the more secure payments they promise.

Square’s new EMV-equipped Reader

Square’s new EMV-equipped Reader

Yes, come the October deadline, every retailer in the U.S. will still be able to take a mag stripe card payment, and every credit card will still have a magnetic stripe. But if a retailer accepts a mag stripe payment on a card that has EMV capability, that merchant will be on the hook for any fraudulent purchases.

MasterCard estimates that by the end of 2015 half of U.S. credit and debit cards will have smart chips in them. Not only should stores want to take them for liability reasons, but also consumers should want to use them because the data on those chips in encrypted.

While Qvivr is right that its card will still be usable long after the shift to EMV commences, by using outdated technology it’s essentially holding its customers back while the payments industry moves forward.

This post was updated at 9:20 AM to reflect that Qvivr is the name of the company that manufacturers Swyp.

As the retail landscape changes, payments hardware is scrambling

Three months ago, Apple Pay kicked off a new flurry of excitement about contactless payments. Now the retail industry is in a race to catch up, which is why in the last week we’ve seen a lot of new point-of-sale equipment debut, all geared to process these new types of transactions.

It’s not just that people want to pay for goods with their iPhones. They want to pay — and accept payment — from every manner device, whether its a Android phone or tablet a digital credit card or even a wearable gadget. Consequently that gray box with a numeric punch keypad and card swipe slot is giving way to a whole new generation of hardware.

[company]For instance, VeriFone[/company] has decided to make a kind universal point of sale system that will work with any kind of mobile device and mobile payments system.

e355 VeriFone PAYware terminal

Called the Mobile PAYware e355, the device has a built-in NFC reader and EMV chip reader, meaning it will accept contactless payments such as Apple Pay, Google Wallet or Softcard as well as new EMV smart chip cards, which will start replacing our old magnetic stripe cards this year. For good measure it also has a mag stripe reader so it can handle today’s credit cards as well as an optional barcode scanner that can read QR code-based payment systems like MCX CurrentC, a mobile wallet being promoted by big box retailers like Best Buy and Walmart.

The device attaches to a mobile phone or tablet either physically with USB or wirelessly with Bluetooth or Wi-Fi so it’s not locked down to, say, the iPad’s lightning dock, and VeriFone says it will be software upgradable in order to connect to any iOS, Android or even Windows device in the future. It’s a pretty smart move by VeriFone, which has traditionally built proprietary point of sale systems, but if retail commerce is moving to the mobile device – on both the consumer and retailer sides of the counter – than VeriFone has to move with it.

As retail commerce becomes more smartphone and tablet centric, we’re starting to see more mobile technology companies move into the retail space. I’m not just talking about Square and its numerous clones. Startups like Poynt and Clover (since acquired by First Data) are focusing their Silicon Valley’s design and programming skills on redesigning the cash register. And now mobile phone makers are getting in on the action as well.

[company]Samsung[/company] is taking a shot at payment terminals, announcing at the National Retail Federation Conference this week that it is partnering with VeriFone to make that company’s Android point-of-sale system with its Galaxy Tab Active slate at the center. [company]Panasonic[/company] is known for its ruggedized laptops and tablets, and now it’s making a version of its Toughpad for retailers. It boasts a few features you won’t find on your typical slate, such as a hardware PIN pad, EMV and mag stripe readers and a NFC radio.

Wirecard Smart Band

We’re even starting to see the reverse of this trend: financial companies innovating on hardware. This week, German payments and banking firm Wirecard announced a concept for a wristband that acts as a mobile wallet.

As I said earlier, [company]Apple[/company] Pay is driving a lot of this activity. Contactless payments are suddenly cool again, though Apple’s rising tide isn’t necessarily raising all ships. Google is seeing more activity on Wallet lately, but Softcard – the mobile carrier’s NFC payments platform – appears to be suffering. Last week it laid off 60 employees, which isn’t a good sign that business is booming.

What we’re seeing, though, is a big convergence of new technologies and policies in the normally staid retail payments market. Apple Pay is one thing, but the coming move away from standard magnetic credit cards in the U.S. to more secure EMV card transactions is necessitating a huge overhaul of current point-of-sale equipment in stores. Companies like Square are making credit card payments available to ever broader cross-section of businesses. And new concepts for universal payment devices like Coin, Plastc and LoopPay are getting a lot of attention.

The countertop hardware at stores is changing, as is the hardware — or plasticware — we’re using to make our purchases. We’re still going to see a lot of the familiar financial industry names when we make our purchases, but Silicon Valley and the mobile industry are rapidly injecting themselves into the retail commerce. Soon, we’ll be just as likely to see Samsung, Apple and Google at the checkout stand as we are VeriFone and Visa.

iPad cash register maker Revel raises $100M

Revel Systems had something to celebrate today. The maker of point-of-sale terminals announced on Tuesday it has raised $100 million in a Series C round from private equity firm Welsh, Carson, Anderson & Stowe and other strategic investors.