CNET

Samsung has acquired mobile payments startup LoopPay, as good a sign as any that it will soon launch a competitor to Apple Pay.

The company didn't disclose the terms of the deal Wednesday but said it stemmed from an existing partnership with LoopPay. Samsung plans to show off a new mobile payments offering at its Galaxy S6 smartphone launch on March 1, according to sources.

"Our goal has always been to build the smartest, most secure, user-friendly mobile wallet experience, and we are delighted to welcome LoopPay to take us closer to this goal," JK Shin, Samsung co-CEO and head of the company's mobile business, said in a press release.

LoopPay's technology turns existing card magnetic strip readers into contactless payment receivers, making it easy for retailers to accept mobile payments without changing their existing point-of-sale terminals. By comparison, Apple Pay requires POS terminals to be equipped with NFC (near field communications) chip technology, which allows information to be shared when two devices are held close together. Retailers have to upgrade their systems to take advantage of Apple Pay, Google Wallet and other NFC-based systems. In the case of Apple Pay, users simply tap an iPhone to a payment terminal and then touch the phone's fingerprint sensor to authorize a purchase. iPhone users also can pay for items in apps and online with a finger touch.

The LoopPay setup "has the potential to work" in about 90 percent of existing POS terminals, according to Samsung, something that could help the technology spread quickly. Besides being compatible with existing terminals, LoopPay can work via NFC and tokenizing credit card transactions, much like Apple Pay. And users can include loyalty cards, gift cards and other types of cards in the system, something that Apple Pay so far has lacked.

"What's a real differentiator is this uses technology that's in stores today," David Eun, executive vice president of Samsung's global innovation center, said in an interview. "We don't have to wait for a point in the future where there are a lot more [NFC-enabled] terminals. "

Eun's group -- formerly called Open Innovation Center -- was created to partner with, invest in and buy companies. It led the earlier acquisitions of smart-home software maker SmartThings and cloud DVR startup Boxee.

He declined to say whether LoopPay will continue to work with the iPhone and other smartphones or whether the technology will become exclusive to Samsung devices. He also declined to provide further details about how the technology will be incorporated into Samsung's products, beyond saying that "strategically, it's huge."

"It's not just about replacing your credit card or debit card but replacing your entire wallet," Eun said.

A new mobile payments world

Samsung's upcoming offering with LoopPay joins an already crowded market of companies trying to replace traditional wallets. Apple launched its own mobile payments service, Apple Pay, in October, and AT&T, T-Mobile and Verizon have pushed their own offering, called Softcard. Large US retailers, including Walmart, Target and CVS, recently formed a consortium called Merchant Customer Exchange to operate their own mobile payments app, CurrentC, while turning off NFC-enabled terminals to block Apple Pay and similar rivals.

And there's also Google Wallet, the service built by the search giant whose Android operating system runs the vast majority of Samsung's mobile devices. By introducing its own service instead of pushing Google Wallet, Samsung is again pitting itself against an important and powerful partner. But it's vital for Samsung to find a way to set its devices apart from all the other Android smartphones on the market.

"The key here is differentiation," Injong Rhee, the head of Samsung's mobile payments and enterprise businesses, said in an interview.

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As Rhee noted, Samsung's move into mobile payments marks the latest step in the company's efforts to create new software and services offerings. As the company faces slowing device sales -- and as smartphones become commoditized -- Samsung has to find new sources of revenue. It has struggled with its own software features, though, instead opting to partner with companies such as Slacker and M-Go or buying companies, including its purchase last year of SmartThings.

Samsung first started talking to LoopPay in 2013 and made a strategic investment in the company last summer. It ultimately decided to buy the company a few months ago after "it became very obvious to us how unique the opportunity was for us to do even more things together by deeply integrating our perspective strengths in mobile hardware and their mobile payments," Eun said.

The deal for LoopPay comes only a few months after Samsung rival Apple launched Apple Pay with the iPhone 6 and iPhone 6 Plus . Apple Pay currently works with about 750 banks and credit unions and at more than 200,000 payment kiosks. And just three months after launch, Apple Pay made up more than $2 out of $3 spent on purchases using contactless payment across the three major US card networks, Apple CEO Tim Cook said last month. Cook called 2015 "the year of Apple Pay."

Samsung has already dipped its toes into the mobile payments area with its Samsung Wallet app. The Samsung Wallet is similar to Apple's Passbook app in that it simply lets you store coupons, tickets and boarding passes. Samsung also offers a feature through which you can pay for Galaxy Store apps by means of a single click without the need for a credit card.

The South Korean electronics giant has much bigger ambitions for mobile payments than simply storing user membership and loyalty cards, Rhee said. It wants to provide everything related to money transactions and offline and online payments, as well as storing gift cards and membership and loyalty cards, he said. LoopPay's technology fits well with Samsung's strategy by working with existing POS terminal infrastructure without making hardware or software modifications, Rhee said. And Samsung will be able to incorporate its security features from its Knox platform, he said.

LoopPay "solves the availability problems and accessibility problems [associated] with mobile payments," Rhee said. "Compared to [NFC], it actually gives us much more, bigger coverage."

Updated at 4:30 p.m. PT with comments from Samsung executives and additional background information.