Imagine walking into a store, gathering some items you want to purchase and waving your smartphone across a the credit card terminal to pay. This scenario is not a reality that’s fast approaching -- it's possible today. In recent years, a number of technology companies have started to subtly say: Forgo the need to carry around a stack of plastic cards in your pocket! Don't worry about having enough cash! Sure, there’s nothing wrong with carrying these items around, they say. But wouldn’t it be nice if you didn’t have to?
Mobile payments, as this area of technology is called, aren’t a new idea. The idea dates to the late 1990s as mobile phones took off in the marketplace. If we can exchange calls and text messages, the thinking went, why not dollars? Since then, companies large and small have taken on the challenge, with mixed results: Google's three-year old Google Wallet app is still around, and the likes of Square, PayPal, and ISIS continue to offer some form of mobile payment solution today. But a visit to any brick-and-mortar store reveals sluggish adoption: No one seems to have disrupted humans' psychological attachment to storing bits of plastic, cotton, and metal in a scrap of cowhide.
The companies trying to solve this problem come from both the technology and financial services industries, and approaches vary widely. But the hurdle remains the same: adoption on both the consumer and retail side of the transaction. Retailers balk because they often need to purchase compatible equipment for their point-of-sale system and train staff on the new payment procedure -- a challenging proposition in a sometimes low-margin business.
In October, a Boston-based company called LoopPay entered the fray with a product that seeks to knock down some of those hurdles. Called Loop, the system promises to work with most existing credit card processing equipment (90%, the company says) and makes it possible for you to leave the leather and plastic at home.
Here's how it works: First, you're asked to download the free LoopWallet app and order a compatible device (a $39 fob that plugs into a smartphone's headphone jack or a $99 payments-ready iPhone case; Android support is due later this year) from the company. Once in hand, you use your phone to load your credit, debit, gift, membership, and loyalty card information onto the device. When you're at a store and ready to pay for a product, hold the device against the credit card swipe slot and press the transmit button.
The wizardry comes courtesy of "magnetic secure transmission" technology, which involves the brief generation of changing magnetic fields. (In the company's own words: "This is accomplished by putting alternating current through an inductive loop, which can then be received by the magnetic read head of the credit card reader. The signal received from Loop emulates the same magnetic field change as a mag stripe card when swiped across the same read head.")
The information you store is encrypted and saved in a PCI-compliant datacenter, and the transmission technology works only when it's activated and within a three-inch distance from the read head. For retailers, there is no extra equipment or training necessary. It is, on paper, a clever way to trick today's technology into working with tomorrow's supposed use case.
But does it really work? To find out, I took a blue fob out on the town.
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After I downloaded the LoopWallet app, I entered my personal information to verify my identity and selected a password and a PIN. I added my cards by swiping each card across the fob with it plugged into my phone, an iPhone 5S. It took some practice to get the fob to stay still the first few times I swiped a card; if the fob moves too much, the card isn’t properly read and you’re asked to swipe again. I was able to add a Visa, MasterCard, and American Express card in a matter of minutes. (In addition to credit cards, you can also add loyalty cards, a driver's license, and insurance cards by snapping a photo of each with your phone.)
After swiping your cards' information into the app, you can set a default card and store its information on the fob. You can also set a time limit, ranging from 10 minutes to always, for the fob to store a single card’s data; once the time limit has passed, the fob loses the stored card’s information. Think of it as a sort of self-destruct mechanism.
There are two different ways to use the fob for payment. The first and easiest method is to hold the fob near a vendor's credit card terminal and press the transmit button. The other method involves leaving the fob attached to your device, with the LoopWallet app open, and tapping on your screen when it’s time to pay. Why use the clunkier latter option? If you want to use any card stored in your LoopWallet, rather than just your default card.
I was able to successfully use Loop to pay at several different merchants. It worked equally well at a Panera Bread, a local family-owned hardware store, and a regional grocery chain. In each instance, when I used the fob, I only had to press the button once for the credit card terminal to successfully receive my card’s information and the clerk to be able to transact payment.
I won't lie, I experienced some hesitation before each transaction. I felt reluctant to ask the clerk to touch a device to the store’s credit card reader. Will Graylin, LoopPay's chief executive, told me that clerks often react with "surprise and delight" and learn to trust the system. In my experience testing the device, I saw similar results. Clerk reaction ranged from not noticing to uttering "Holy crap," as one did, following a long list of questions. Not a single clerk hesitated or refused to let me pay with Loop during my testing at 10 different locations in Colorado.
So is Loop the future of payments? Not quite. In exchange for giving up your plastic cards, you must -- counterintuitively -- carry around a plastic fob. The biggest selling point behind mobile payments is reducing how much we have to carry and making the payment process easier. Having yet another device to manage doesn’t accomplish either one of those goals.
The company's proprietary iPhone case changes that proposition slightly, allowing you to do away with the fob. But Loop's real potential lies in incorporating its technology into future devices, so that you need no additional hardware to conduct a transaction.
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LoopPay says it is engaged in discussions with hardware partners and phone manufacturers about this. When I pressed Graylin on what it would take to put Loop’s technology in a smartphone or smartwatch, he estimated the component cost would be around $1. The technology used by Loop is similar to that found in wireless charging, and can be incorporated in batteries, back covers, cases, and other accessories, he says.
Loop is a brilliant idea, and most importantly, it works. But the fob is better as a proof of concept than a daily companion, and for that reason, only enthusiasts will find today's system worth the expense.