World Mobile Congress, Samsung announced Samsung Pay. This is clearly a response to the very successful Apple Pay product. Although on the surface these two systems appear to be quite similar. It turns out that this is just a small surface feature. Samsung has approached payments from a decidedly different point of view.
There are two components to Samsung Pay:
Samsung Pay: NFC
The NFC portion of Samsung Pay is similar to Apple Pay and uses the same open infrastructure of NFC built on Visa PayWave and MasterCard’s PayPass systems that Google Wallet and Apple Pay use. The explosive growth of NFC locations in North America is over 650,000. This growth is not nearly the often quoted 25 million businesses, but it turns out only about 1/3 of these locations would make sense to even accept payment cards. Some businesses are just manufacturing businesses that sell in large quantities with large ticket sizes. Thus at the current rate NFC business locations will reach a critically important level by this summer.
Samsung Pay uses a finger print scanner to approve the transaction, but it has a far different technology for an accurate scan, more of a swipe then a placement of the finger one is used to with Apple Pay.
Samsung Pay: MST
The MST portion, technology recently acquired from LoopPay, Samsung portends to work at 95% of merchants. This may be close to true in theory because MST simulates a card swipe through magnetic induction to the magnetic card read head on the payment card terminal. The technology is interesting and would have been outstanding in 2008 if promoted correctly, but as a very early user of LoopPay I discovered very quickly that merchants were very, very uneasy about a transaction that took place outside the normal patterns of card usage.
Understand that the merchants that did not upgrade to a new payment card terminal and it may have well been in place for decades will be surprised my Samsung Pay and perhaps more then concerned. Then one day someone shows up and holds a phone up to the payment card terminal and it appears the transaction has gone trough. The problem is this can look like a “hack”. In the case of an NFC upgrade, there is some knowledge there will be mobile phone payments with the 2 decade old payment card terminal, the merchant should be rightly concerned if the transaction is valid.
It is clear that 89% of payment card terminals are behind the counter and not reachable by the consumer unless they give the phone to the cashier. This action opens up a host of liability issues.
It is important to know that although Samsung calls this Magnetic Secure Transmission it does nothing to encrypt the payment card number and has all of the issues a regular payment card has when used: no encryption, no one-time use protection.
There is no live receipt as one receives when using Apple Pay if MST is used. There is no notice of if the payment card terminal has received the transaction because there is no “handshake” as seen in NFC.
To be sure Samsung has deals in place with MasterCard and Visa and is working on arrangements with American Express, Bank of America, Citi, JPMorgan Chase, U.S. Bank and others. However this support is more for the NFC portion and not the MST portion. There is talk of MST support for tokenization but read on why I think this will likely not happen to any degree.
Finally, MST can not perform any in-app purchases like many are getting used to with Apple Pay. The system only works with old payment card terminals.
Here are some comments from Visa and MasterCard executives:
I think it is abundantly clear how Visa and MasterCard really view MST as opposed to NFC. By October, 2015 in the US, payment card terminals will need to have EMV and NFC acceptance or the merchant will face fraud losses and ultimately higher fees to accept payment cards.
The path is clear, magnetic card reading terminals have begone the long “end of life” and have been full depreciated. The likely real winning candidate from this will be NFC by either smartphone or new NFC payment cards. Thus MST is a transitional system that could be useful in short term but also cause large scale confusion and befuddlement among merchants and consumers. This element will do much to dilute the Samsung Pay brand, use cases and reputation.
Samsung Pay: A Different User Experience
Samsung Pay also has more steps to complete the transaction using NFC or MST. There is a flip up to let the phone know you want to make a payment. There is a log in to unlock the wallet with a fingerprint scan and then there is a requirement to place the phone less then an inch to the payment card terminal if using MST.
To be certain, Will Graylin and George Wallner of LoopPay/Samsung Pay are the best minds in payments. They are the real true value at Samsung and I am certain they will create huge value for Samsung and the entire payments ecosystem.
Samsung Pay will not win or lose against Apple Pay. The fact is it will promote more merchants to adopt NFC at and even larger scale and rate. Samsung Pay need not win any race, just have some solution for team Android. The popularity of Android phones will extend the awareness of mobile payments and raise the waters for everyone.
Apple wisely choose to break the tyranny of closed wallet technology schemes many startups dreamed up. Apple chose open NFC, encryption, tokenization and ultimately BLE Beacon technology and the entire payments ecosystem has become a synergistic supporter and promoter. In the mid to long term Samsung will benefit from this as Apple will benefit from Samsung. In the short term, Samsung Pay’s MST technology will confuse, befuddle and perhaps enrage just about all in the payments ecosystem.
Samsung Pay will do well but it will not have any significant impact to Apple or Apple Pay. Both companies win. All merchants win. Banks win. We all win.
Listen to this timely Around The Coin podcast addressing LoopPay and Samsung: