Why Samsung Is Entering The Mobile Payments Fray

by Trefis Team
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Samsung Electronics
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Samsung Electronics (PINK:SSNLF) recently announced that it acquired mobile payment startup LoopPay in a move that will allow the company to play a larger role in the nascent yet rapidly expanding mobile wallet market, and also allow it to compete more directly with the Apple Pay platform. The terms of the deal were not disclosed. While Samsung already had an existing partnership with LoopPay, we believe that the company is making a larger point with the acquisition, indicating that it could play an increasing role in the mobile software and services space as it looks to find a differentiating factor for its beleaguered smartphone business.

Trefis has a $1,285 price estimate for Samsung, which is slightly ahead of the current market price.

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LoopPay’s Unique Selling Point

LoopPay addresses one key issue plaguing other mobile payment platforms. While services such as Apple Pay and Google Wallet only work with Near Field Communication (NFC) based retail terminals, which are supported by just about 2% of U.S. retailers, LoopPay’s technology is compatible with conventional magnetic swipe terminals. [1] The company claims that its solution works with over 90% of retailers who have magnetic swipe terminals, although it doesn’t work at ATMs and gas stations. [2] This could help the technology scale up quickly, unlike NFC technologies, which require a lot more heavy lifting in terms of getting retailers to install new equipment. In addition to credit cards, LoopPay works with gift, membership and loyalty cards. The technology can also work with NFC and tokenizing credit card transactions, much like Apple Pay. [3] However, in its present form, LoopPay exists as a separate Fob or attachment that works in conjunction with Android or iOS based phones. With Samsung’s acquisition, it’s likely that the technology will be increasingly built into smartphones and it’s possible that it will make it into the company’s upcoming flagship phone, the Galaxy S6.

Payments Won’t Impact Samsung’s Financials, Should Help Mobile Strategy

According to BI intelligence, mobile in-store payments in the U.S. will rise from around $2 billion in 2013 to around $189 billion by 2018, translating to a CAGR of about 148%. We expect the global market to also be almost as large. [4] However, we don’t believe that Samsung’s payments venture will contribute much to the company from an earnings standpoint. The LoopPay service is unlikely to be bring in the lucrative transaction fees that companies like Apple have been able to garner (0.15% of transaction value according to the Financial Times), since it largely mimics credit card swipes rather than running a propriety technology that interfaces directly with banks and credit card payment networks. Instead, Samsung is likely to be using its own mobile payments strategy as a means to differentiate itself in an increasingly crowded smartphone market, where functionality-based innovation can be a big advantage. The acquisition could also help the company improve its competency in mobile software and services –  which are areas in which it has significantly trailed behind its competitors.

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Notes:
  1. The Payments Tipping Point Will Be In 2015,Techcruch, December 2014 []
  2. A Digital Wallet That Works Almost Everywhere, ReCode, March 2014 []
  3. Samsung buys LoopPay, all but confirming new Apple Pay rival, CNET, February 2015 []
  4. THE FUTURE OF PAYMENTS: 2014 [SLIDE DECK], Business Insider, September 2014  []
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