Industry News

How Samsung Pay can both hurry and hinder the spread of mobile payments

Just shy of a year after Apple thundered onto the mobile payment scene with the launch of Apple Pay, Samsung is having its turn. With an initial debut in Korea on August 20 and a US launch on September 28, Samsung Pay is guaranteed to get a fair amount of publicity, given the company’s status as the world’s biggest smartphone maker. But the new service probably deserves more exposure than it is likely to get, at least over the next few months.

While Apple beat Samsung to market with a mobile payment service by what in the smartphone business amounts to eons, in some regards Samsung’s answer to Apple Pay is more profound. That’s because Samsung Pay features a largely proprietary technology that will make it immediately useable at a much larger number of retailers, including many who might not even know they were capable of accepting mobile payments.

The technology, called Magnetic Secure Transmission (MST), makes this possible by “tricking” the magnetic stripe reader of traditional point-of-sale terminals into thinking that a tap of a phone is a swipe of a credit card. MST came to Samsung quite recently, with the company’s acquisition in February of LoopPay, for roughly $250 million.

In addition to broadcasting data magnetically via MST, Samsung Pay can also use Near Field Communication, the data transmission mechanism of Apple Pay and similar services. And to bolster security it employs “tokenization,” which means that merchants never actually receive complete card information when a transaction is executed, as well as biometrics, via the fingerprint reader available on the most recent Samsung mobile devices. Overall, its security measures appear to meet those of Apple Pay, and will significantly exceed those of the forthcoming Android Pay, which as a background system service runs continuously, meaning that one the phone is unlocked anyone in its possession can execute a transaction.

The addition of MST – and all the thousands or even millions of retail locations it will be instantly available at – would seem to make Samsung Pay the proverbial “killer app” in the mobile payments space. Which is apparently what Samsung is wagering on, as competition from generic Android-powered handset-makers has cut painfully into its market share and margins.

But much still stands in the way of “instant ubiquity” for Samsung Pay. In the US, only four major carriers will be involved initially, and only cards from a handful of issuing banks. Meanwhile, despite the hype MST doesn’t actually work everywhere, with a notable exception being card readers that require a physical trigger to initiate a transaction, as at petrol/gas station pumps. And, of course, it only works on Samsung devices, and only the newest ones produced by the company (The Galaxy S6, S6 Edge, S6 Edge+ and Note 5).

Added to this is a total lack – at least for the time being – of remote payment use cases, which even Apple has encouraged third-party developers to integrate with Apple Pay. Likewise, earlier talk about a focus on loyalty and couponing doesn’t seem to have resulted in any such features.

So what could be a major boost to the mobile payments ecosystem could end up just causing another round of dashed expectations of rapid uptake. If so, it unfortunately wouldn’t mark the first such fizzle for Samsung, as an earlier foray into mobile wallets never made it out of the company’s home market in Korea.

Because of all this, and the fact that Samsung doesn’t seem to have a plan to quickly monetize Samsung Pay, one has to hope that the firm is keeping an open mind about eventually making its most novel feature – MST – open-source, or at least widely licensing the technology. And if this seems like a crazy idea, note that many thought Google would regret the similar decision that allowed Android to quickly become almost as ubiquitous as the magnetic-striped plastic card.