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Samsung in Talks to Launch Apple Pay Competitor

The potential deal would involve Samsung licensing technology from a payments startup called LoopPay.

Samsung has discussed a deal with a payments startup that would help the smartphone maker unveil a wireless mobile payments system in 2015 to rival Apple, according to multiple sources.

The technology would allow people with certain Samsung phones to pay in the vast majority of brick-and-mortar stores by waving their phones instead of swiping with a credit card or cash. Samsung’s new smartphone is expected to be announced in the first half of 2015.

It is not yet clear if Samsung has reached a deal with the startup, Burlington, Mass.-based LoopPay. One source said the deal could still fall apart. A prototype of the payments system working on a Samsung phone has been created, the other source said.

A Samsung spokesman and LoopPay CEO Will Graylin declined to comment.

The talks between Samsung and LoopPay come as the idea of paying for goods in stores using a phone was rekindled in the U.S. thanks to the launch of Apple Pay. In September, Apple unveiled its payments system, which lets owners of the newest iPhones pay for items in stores by placing their phone in close proximity to checkout equipment.

Apple Pay users complete the purchase through an authentication process that involves pressing one’s finger against the fingerprint identification sensor built into the phone’s Home button. Samsung’s latest Galaxy phone also includes fingerprint identification technology, which would likely be incorporated into the new payments system, sources said. The technology can currently be used in conjunction with PayPal’s app to pay with a phone at stores that accept PayPal. Samsung could be interested in creating its own payments system because it believes such a technology will become table stakes in its battle with Apple.

For LoopPay, a Samsung licensing agreement would go a long way toward giving its technology the mainstream credibility it so far lacks. LoopPay’s technology can wirelessly transmit the same information stored on a debit or credit card’s magnetic stripe to a store’s checkout equipment without swiping a card. The company has embedded the technology, which it calls magnetic secure transmission, into a few hardware products it sells directly to consumers: A fob, as well as a LoopPay digital payment card that can be used on its own or while secured in a special LoopPay smartphone case. To complete a purchase, LoopPay users tap any of these devices near the spot on a store’s credit card terminal where a card is usually swiped.

Since the technology mimics a card swipe, it works in far more locations than Apple Pay or Google Wallet, which require a store to upgrade to equipment that includes a technology called near field communication, or NFC. When Re/code’s Walt Mossberg reviewed LoopPay earlier this year, it worked at 10 of the 13 stores he visited.

Graylin, LoopPay’s CEO, told Re/code earlier this month that his company’s technology would be embedded into a mainstream smartphone in 2015 that would have “massive penetration.” He declined to name the phone maker then, and declined again when asked about the Samsung discussions.

He also said the partnership with the unspecified phone maker would allow payment information to be transmitted to the merchant via NFC technology in addition to via LoopPay’s traditional magnetic stripe-mimicking technology. Users would not have to open up an app to transmit their payment, he added.

The inclusion of NFC could be important to LoopPay’s future as retail stores begin to update their checkout equipment to accept a new type of payment card that is inserted into a card reader instead of swiped. This upgraded equipment also often includes NFC technology. Merchants who install this equipment will still be able to accept magnetic stripe cards, but swiping is expected to be phased out over time as card issuers and merchants alike begin to favor the new chip-embedded cards that are already common in Europe and less susceptible to cloning.

Graylin said his company has been in discussions with financial services companies such as Visa, which is an investor in LoopPay, about finding a more secure way to pass payment data from one of its devices, or a phone, to a store’s checkout system. LoopPay hopes to use a system known as tokenization, which substitutes a shopper’s card information with a unique placeholder, to accomplish this. The token is later matched up with a specific credit card account by a card network or bank. A merchant never receives or stores the actual payment information. Apple Pay utilizes tokenization when passing information from a new iPhone to a store’s checkout system.

This article originally appeared on Recode.net.

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