On the surface, Visa's investment in LoopPay may appear to be nothing more than way for Visa to cover their bets in the ever-changing mobile payments marketplace. On the other hand, the partnership could develop into something much bigger, impacting the entire payments ecosystem.
LoopPay, Inc., which provides the world’s first mobile payments solution accepted at the vast majority of retail point-of-sale terminals, recently announced that it had received an investment from Visa Inc. as part of a larger strategic funding round which includes Synchrony Financial (formerly GE Capital Retail Finance) and other strategic partners yet to be named.
This announcement came at the same time as Visa announced the creation of Visa Digital Solutions, a comprehensive suite of offerings that facilitate secure payments across a broad range of Internet-connected devices and wearables. According to Visa, their Digital Solutions suite falls into two categories; 1) Support for new payments methods (like the just announced launch of Visa Checkout, which replaces the earlier V.me digital wallet), and 2) Technology that protects consumers and supports industry innovation (tokenization).
The importance of these series of announcements to banks and credit unions is that it could represent a major shift in the mobile payments landscape. It is the first time that a major payments player like Visa showed confidence in the security of a third party developer like LoopPay that invented Magnetic Secure Transmission™ (MST) technology. This technology leverages existing point-of-sale infrastructure to receive contactless payments from mobile devices of all kinds with no hardware changes required by merchants.
“Visa continually evaluates and invests in new technologies that have the potential to transform mobile devices into secure payment vehicles,” said Jim McCarthy, senior vice president of innovation and strategic partnerships, Visa Inc. “LoopPay has developed compelling technology that has the potential to enable merchants to accept payments from mobile devices using their existing point-of-sale infrastructure.”
( Read More: Loop: A Mobile Wallet Game Changer)
Moving Beyond Fobs and Charge Cases
At this time, LoopPay provides accessories like fobs and charge cases that allow consumers to swipe their devices at virtually any traditional merchant POS terminal and have the transaction processed without the need for a card. The investment by Visa not only can support growth of this process, but could open the door for new uses within devices like phones and wearables.
In an exclusive interview with Will Graylin, CEO of LoopPay, “We plan to provide a platform that the entire ecosystem can use – to provide more frictionless and more secure commerce experience with mobile devices. The vision is that we will get the technology embedded into multiple devices like charge cases, card cases and fobs today, and eventually smartphones and wearables.”
Given the small physical size and relatively low cost of the LoopPay technology, is there any reason why the same benefit of making a payment at virtually any POS terminal could not be integrated into a wearable like the Gear 2 watch or any upcoming Apple iBand or iWatch? Imagine the immediate benefit available to Samsung, Apple or any other player who can combine the ID functionality of the wearable (with either a fingerprint or PIN number), the real-time transaction acknowledgment and the near universal POS terminal acceptance.
If not a wearable, the potential to embed the LoopPay technology into a smartphone certainly provides device differentiation.
Speculation along this line is be heightened by the fact that Visa has decided to partner rather be than a competitor to hardware manufacturers seeking to bring their own mobile wallet services to market. Visa already has a mobile payments partnership with Samsung, signed during Mobile World Congress 2013. Conversations between Visa and Apple supposedly have also heated up in recent months, with several industry followers believing that Apple will launch a mobile ‘wallet’ as soon as this fall.
As mentioned is a recent article by Business Insider entitled, How The iWatch Could Be Apple’s Secret Weapon For Mobile Payments, “Like the ‘Magic Bands’ at Disney, payments could be as easy as tapping your watch/band/device, enter a code, and leave your wallet at home.”
Interim and Long-Term Solution
Why would any provider want to support a solution that is not based on either NFC or EMV technology? With the movement towards new payment technology like EMV, there are those who believe that the LoopPay solution may only be a bridge until ‘the next big thing.’
As can be expected, Graylin from LoopPay disagrees, “We believe our technology will be a great compliment to other technologies like NFC, EMV or barcode and coexist with these technologies. For now, it works really well as the main solution, as it is the only solution that can work at 90% of POS. It will take years until NFC, EMV or barcodes even reach 50% merchant acceptance.”
In other words, for early movers in the payments space, the LoopPay technology provides near universal POS mobile acceptance today which far exceeds any current or near-term solution. Visa (and others) seem to believe this is a tangible benefit.
More importantly, LoopPay is adding security far beyond EMV to enable a more secure mobile phone transaction. According to LoopPay, they leverage many existing standards and solutions like PCI or Visa MSD specs but additional security created for cloud payments and mobile phone technology.
It should be noted that the LoopPay solution, when initially introduced, did not work at all merchants, including gas stations and ATMs where insertion of the card is required. While LoopPay still doesn’t work at ATMs or gas station terminals, most other merchants are now able to be accepted, such as Walgreens’ 60,000 Equinox POS units where LoopPay did not work 4 months ago.
According to Graylin, “We are making efforts to improve our own sequence, and working with some terminal providers and merchants to make software mods to improve not only Loop reads, but also for standard mag stripe card reads.”
Bank and Credit Union Opportunity
Is this a challenge or an opportunity for banks and credit unions? Yes and … yes.
The partnership of Visa and LoopPay (with the potential addition of OEMs and other outside mobile players) can increase the competition in an already crowded marketplace. These partnerships also illustrate the speed that the payments marketplace is moving and the difficulty in keeping up with these changes.
That said, there are opportunities for those financial organizations that are willing to work outside their traditional comfort zone to stay relevant with the digital consumer who is expecting more from their financial institution. In the exclusive interview conducted by The Financial Brand, Will Graylin said, “We are already talking with FIs and would work closely with any organization to implement specific solutions. The technology can be integrated within a financial institution’s mobile banking apps or the organization can provide the devices to expand their offering.”
Graylin went on to say, “My take is that it allows a bank or credit union to differentiate with a payment solution far more secure than existing cards that works at 90%+ of the existing terminals. This is a differentiating solution for their most profitable customers that can leverage the LoopPay solution either as retention tool or acquisition in very specific segments.”
The LoopPay solution allows payment cards, gift cards and loyalty cards to be securely loaded by consumers to a LoopPay-enabled device, or the solution can be remotely provisioned by card issuers after proper user authentication and account setup. Payment card issuers can remotely provision not only static card data, but also tokenized or cryptographically signed payment data to provide more secure transactions for physical and online commerce.
Whatever a financial organization decides to do in response to the continuous changes in the payments marketplace, the best bet is to make several small bets in the game of ‘payments roulette,’ where the only winners are those who get engaged and take advantage of opportunities as they present themselves. Those organizations who sit on the sidelines will not only miss the opportunity to ‘win,’ but may actually be left behind as competitors take market share from demanding digital consumers.