Samsung (NASDAQOTH:SSNLF) may have made one of its most important acquisitions ever. Earlier this month, the company acquired LoopPay, a mobile payment start-up with promising technology.
Even before the acquisition, Samsung was rumored to be using LoopPay in some of its upcoming smartphones. With the acquisition, it seems all but confirmed that LoopPay will be integrated into Samsung's future handsets.
Although LoopPay isn't perfect, it offers a number of significant advantages over Apple (NASDAQ:AAPL) Pay, and could make Samsung's future devices all the more enticing to potential buyers.
Why LoopPay is better than Apple Pay
When it works, Apple Pay is nearly flawless. Unfortunately, it doesn't work that often.
Apple Pay requires a strong degree of merchant buy-in: namely, the installation of NFC-equipped payment terminals. Many merchants simply don't have them, and even if they do, it's not guaranteed that Apple Pay will work: some (including Rite Aid) actively block Apple's payment platform.
In time, this seems likely to change, but for now, Apple Pay is only a modestly useful feature, and can't come close to replacing an iPhone owner's actual wallet.
LoopPay, in contrast, can. This is because the technology that underpins LoopPay is much different: Rather than rely on NFC, LoopPay uses magnetic technology to mimic the process of swiping a traditional credit card. LoopPay isn't a radical new payment platform, but a way to effectively clone most of the cards in a given wallet (not just credit cards, but also loyalty cards and gift cards).
When Samsung finally integrates LoopPay's technology into its handsets, it will have a mobile payment solution that work with more than 90% of merchants. Apple Pay, in contrast, is extremely limited -- only 3% of US retail locations currently accept it.
But will it really benefit Samsung's bottom line?
However, from an investing standpoint, Apple Pay may be superior to LoopPay -- when consumers make a purchase using Apple Pay, Apple takes a cut -- a modest 0.15%, but a cut nonetheless.
It's not clear if Samsung will get something similar. LoopPay, as it currently exists, simply makes a copy of a user's credit card: Unlike Apple Pay, LoopPay has no list of pre-approved financial institutions. That said, the inclusion of LoopPay's technology could benefit Samsung's bottom line in a more direct fashion: By enticing consumers to purchase its latest flagship.
Samsung's profits have declined in recent quarters, as competition from other manufacturers -- including Apple -- have weighed on the demand for its high-end Galaxy handsets. Assuming it's executed correctly, the inclusion of LoopPay would give Samsung's handsets an advantage over Apple's competing devices, and could win over many smartphone buyers.
Do consumers actually care?
Of course, that assumes that consumers actually care about their smartphone's ability to replace their wallet -- and to be honest, there simply isn't much evidence to suggest that they do. The iPhone 6 and iPhone 6 Plus have set sales records, but it's impossible to pin their success on Apple Pay alone. A few consumers may have been enticed by Apple Pay, but their larger screens stand out as the more important feature.
Nevertheless, the push toward mobile payments remains important to Samsung and Apple shareholders. A smartphone with the ability to truly replace a user's wallet could offer compelling value. No company has been able to deliver that just yet, but the first one to do so could benefit immensely.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.