Q&A with Will Graylin, CEO of Mobile Payments Startup Loop

Boston-based mobile payment start-up Loop was founded in 2013 by Will Graylin and George Wallner, two very smart guys who figured out how to emulate a mag-stripe credit card swipe with your phone. A user pays at point-of-sale by placing his or her phone near the payment system’s magnetic stripe reader.

This means consumers can pay with their phones at most U.S. merchants (gasoline pumps are an exception), and those merchants can continue using their current POS systems. This is brilliant, because one of the big issues impeding adoption of mobile payments is the unwillingness of merchants to invest in new POS systems. Until significant numbers of customers try making mobile payments, merchants just don’t see the need.

And that’s a problem. Customers don’t see the need, either. They’re not clamoring for the ability to make mobile payments because credit and debit cards work just fine.

That’s also a problem for Loop, which requires consumers to purchase and carry extra hardware if they want to pay using their phones. Loop is selling a fob and a phone case for $34 and $99, respectively. The case does double as an extra battery for your phone.

Loop can store hundreds of payment, gift, loyalty, and reward cards. You can select the card you’d like to pay with at the checkout counter. Loop can also store receipts, licenses, and many other things on your iPhone.

I am a mobile wallet skeptic, and on record as saying that consumers don’t see enough utility in having mobile wallets and in making mobile payments to justify @LoopPay‘s added expense and extra hardware.

Will Graylin, CEO of Loop was gracious enough to address my skepticism and answer a few questions.

Q.  Congratulations on being voted Finovate Best of Show. Very impressive presentation.

A.  Thank you. Our team was very excited to take part in FinovateSpring this year to showcase our up–and-coming technology and we were honored by our win, especially as we were among so many innovators in the industry. I’m glad to have confirmed that the important conversation on mobile payments is trending for tech-savvy consumers.

Q.  What consumer problem are you solving with Loop?

A.  Bulky wallet syndrome seems to be sweeping the globe. Consumers world-wide add more loyalty cards, gift cards and credit cards to their wallet on a daily basis, making carrying a wallet and keeping payment and loyalty options very uncomfortable and disorganized. Our technology streamlines the process for end-users to work with technology that they have already invested in, making the process extremely convenient for consumers and merchants. Consumers can download the LoopWallet app to their smartphone, upload their cards and have full access to all payment and loyalty options. As long as merchants have a mag stipe card reader, they are able to take payments from consumers using Loop. The way a consumer’s payment information is stored also guarantees a higher, more complex level of security, tokenizing all data that is used to make a payment at point-of-sale.

Q.  I haven’t seen any data to suggest significant numbers of U.S. consumers are in the market for a mobile wallet or a mobile payment mechanism. Why do you think people will pay for and carry extra hardware when most are perfectly satisfied using their existing cards?

A.  Consumers were satisfied with cash before cards existed, because it’s all they knew in regard to payments. The same trend is slowly happening to cards, as they phase out for more convenient methods of payment. In fact, according to Nielsen, already 37% of smartphone owners have used their device to make a mobile payment. As convenient, secure and easy payment options become available, this number will continue to increase over time. In terms of Loop, the devices we currently offer are just a stepping stone to the true realization of Loop’s potential. Loop technology has the means to be built into phones, smart watches, etc. We will eventually be giving the generation who uses their phone as a daily personal assistant an easy and secure way to pay for items with the swipe of a button on any device they already carry.

Q.  Who is your target market and how are you reaching him or her?

A.  Ultimately, we are looking to reach the widespread consumer market. Our focus for our early stages is the tech influencers and early adopters. We need to prove that Loop technology is something consumers want to use on a daily basis for a positive mobile payments experience. My executive team has been working on press and thought leadership opportunities surrounding some of the recent launches we’ve had in 2014 to spread awareness about Loop and mobile tokenization. Our social media platforms are open, ready for questions and comments by our current users or those on the fence about the technology. We’ve also engaged consumers with a few giveaways and contests, through events and social media, to promote the recent Android app launch.

Q.  Can you share the number of people currently using Loop and the volume of payment that you are processing?

A.  For our Kickstarter campaign and the early months of 2014, Loop has been met with a large market enthusiasm and great anticipation.  We are excited to unveil several more products in the remainder of the year and look forward to faster consumer adoption.

Q.  Loop is a Kickstarter success. Are you still engaged with your Kickstarter backers?

A.  Yes. Our Kickstarters are the reason LoopPay is at the level it is at today. We thank them for their support and their effort to share our idea with others who feel passionate about the evolution of payments. The feedback we receive from our Kickstarters has been an integral part of our app design process for both Apple and Android and they will continue to be our sounding board as we bring new iterations of the Loop technology to market.

Q.  Is Kickstarter appropriate for other FinTech startups?

A.  Kickstarter is a jumpstarting point for us to translate our patented technology to a consumer product.  We learnt tremendously about consumer behavior and market reactions to a new technology and a completely new way to pay.  For us, it was a worthy endeavor.

Q.  You raised a $10MM Series A from undisclosed investors last year. Are you still planning to raise a Series B in 2014? What will the new capital be used for?

A.  We continue to invest in our business, technology and product lines.

Q.  The U.S. begins moving to EMV next year. What is the plan for Loop as magnetic stripes are phased out?

A.  “Begins” is a vague term. The realistic timeline for EMV is much slower than many realize. Magnetic stripe readers (MSR), however, will never be fully rendered obsolete. There are 15.7 billion payment cards worldwide with mag stripes (not counting loyalty cards), out of which around 1.5 billion are EMV-enabled chip cards. EMV readers currently account for less than half of those POS terminals, with NFC readers found at less than 8 percent of terminals. Now that Loop has turned MSRs into contactless mobile payment receivers, MSRs will be further leveraged for mobile payments for years to come. Merchants have the ability to build additional layers of security – as good as or better than EMV on mobile devices. Loop is a real alternative as a more convenient and more secure solution for the payment industry.

Even as migration starts to occur, users can store Chip cards in Loop today and use them at mag stripe readers (MSR) just like any other non-Chip card. You may wonder if MSR will disappear as the market starts to adopt EMV technology. The short answer is No. EMV cards only represent about 10 percent of all payment cards in circulation worldwide. Even in Europe where EMV cards are pervasive, each terminal has a mag stripe reader to accept cards that only have mag stripes such as gift cards and local private label cards. This will be true for the U.S. market when it starts to adopt EMV.

Q.  Loop’s Magnetic Secure Transmission (MST) technology mimics a “card present” transaction – and currently receives favorable “card present” treatment – even though no card is present. Do you believe this will continue?

A.  “Card Present” transactions require two items to be true: 1) The transaction is accomplished via POS terminal in a “brick and mortar” store and 2) the card swipe data is transmitted via the POS terminal. Since the POS terminal simply accepts magnetic stripe track data it cannot tell whether it was swiped from a physical card or via Magnetic Secure Transmission (MST); the POS device Acquirer and Issuer can only see a CP transaction. Using Loop to transmit the track data is the same to the POS as using a card swipe to read the track data off the card.

Q.  What other hardware do you have in development?

A.  Currently the Loop Fob is the only LoopPay device available to the market. Many users are in anticipation of our Loop ChargeCase, which will create the same contactless payment option as the Fob and also provide the user with 60% more battery life. There are a few other LoopPay devices in the works as well as the opportunity to embed Loop into other devices as we continue to grow and expand our development and partnership efforts.

Q.  What are your plans for Android devices?

A.  The Android version of LoopWallet was recently launched and the Fob is compatible with all devices running on Android version 4.2 or later. Eventually, more form factors will be available for Android devices.

Q.  What do you think of the idea of making payment by watch or Google Glass?

A.  The idea of payments by wearable technology is very possible in the coming decade. As noted above, it is certainly a part of our plan for the future as we remain committed to enabling secure, seamless payments on the devices that consumers are already carrying.

Q.  Is having your software preloaded onto handsets the ultimate objective? What progress have you made in that direction?

A.  We are making significant progress and currently working with a few large original equipment manufacturers. MST can be imbedded in a variety of form factors.  As more and more consumers adapt to a mobile dominant lifestyle, the possibility of physical devices is endless.

Q.  How secure is MST compared to NFC, Bluetooth, and other contactless technologies? How safe is the card data stored on your phone?

A.  Since its early days, electronic payments relied on a card. The mag stripe has survived because a reliable, low-cost, real-time authorization system has kept fraud under control as long as the card data remained secret. But keeping the card data secret is increasingly difficult because of hacking. Still, mag stripe cards are inexpensive and will persist for a long time. Today, smart cards, such as EMV, can cryptographically sign transactions to make them secure as long as the keys in the cards remain secret. For 15 years no practical way has been found to access the keys held in EMV smart cards. Though, as new technology changes that, there needs to be alternatives.

The original NFC-based mobile implementation of payments had the mobile device emulate a contactless smart card. But, unlike cards that are made and provisioned in a controlled, secure environment by a card issuer, mobile phones are never under the control of any card issuer. That makes remotely loading phones with those crucial keys a daunting challenge. As a result, the solution is a very complex architecture that includes a Secure Element in each phone (really, a multi-function EMV chip), layers of keys and multiple secure applets, trusted intermediaries, and a whole web of complex and tenuous relationships.

An alternative to this complexity is a cloud-based system, which enables a much simpler architecture. Unlike cards, mobile devices are constantly connected to a network, which is critical for payments because it enables a new approach to security. Instead of containing secret keys to sign transactions like smart cards, mobile devices can be loaded over-the-air with tokenized cards that allow one-time cryptographic signatures. These signatures are generated in the cloud under the control of the card issuer, and each signature is good for only one transaction. Signatures can expire and can be cancelled without having to cancel the card. Once a signature is used for one transaction, once authorized by the user, a new one is generated in the cloud to replace it.

Mobile tokenization is a simple technology that offers an easy and cost effective way to improve card payment security without the need for retailers to change their systems. Loop’s Mobile Tokenization works with today’s retail payment infrastructure and will work tomorrow with future infrastructures that comply with the EMVCO Tokenization Framework standard.

Q.  Will Loop work if I try to pay in Asia? South America? Europe? Can I buy your hardware if I live there?

A.  The LoopWallet application is only current available in the United States, however anyone from the U.S. who has downloaded the application on to their phone can use Loop and their appcessory anywhere in the world that has a magnetic stripe reader. This includes EMV terminals as long as you are transmitting a card that was originally issued to the user as a mag-stripe card only. We do plan to eventually have the application expand to other countries as we continue to grow.

Q.  Other than selling fobs and cases, what are your intended revenue streams?

A.  Revenue from hardware sale is the beginning of our revenue model.  We are also considering licensing our technology, working with issuers and making the LoopPay application a channel to advertise for deals, loyalty offers and more.

Q.  If not mobile payments, what other uses can your MST be put to?

A.  MST emulates credit card transmission wirelessly.