The mobile payments war has heated up with the official arrival of Samsung onto the scene. The world’s largest smartphone manufacturer unveiled its new mobile payment system, Samsung Pay, at the Mobile World Congress in Barcelona on Sunday.
Samsung Pay, which will be available on its new line of smartphones including both the Galaxy S6 and Galaxy S6 Edge, will launch this summer in the US and South Korea. The South Korean smartphone manufacturer expects to expand the mobile payments service to Europe and China thereafter. Samsung Pay works when a user launches the service and then confirms payment with his or her fingerprint. This mobile payments service will use NFC chips to communicate with compatible POS terminals as Apple Pay does today, but a recently acquired technology will enable the Samsung Pay system to work with traditional card swipe readers as well.
Samsung Pay’s edge in the marketplace
A NFC-based wallet coupled with the added security of tokenization and biometrics would place the new Samsung Pay product on equal footing with Apple Pay, if that were the extent of this platform’s features. Samsung’s recent acquisition of the US-based startup LoopPay, however, gives the South Korean manufacturer an edge against an NFC-based wallet, such as Apple Pay. In contrast to Apple, Samsung does not have to convince retailers to upgrade terminals to support NFC payments as Apple has had to do with its current NFC-only strategy. Essentially, this gives Samsung Pay much broader acceptance at launch than Apple Pay has today, especially in a market like the US that remains primarily mag stripe.
While most markets around the world have transitioned to chip-based cards, the US market is still in the early stages of that transition. The Payments Security Task Force, a cross-industry group set up by Visa and MasterCard, estimates that only half of merchant terminals will be enabled for EMV chip technology by the end of the year. Many merchants are actively upgrading terminals because fraud liability will shift to whoever in the transaction is not compliant with the EMV standard starting in October 2015. As a result of this slow transition, this recently acquired technology provides Samsung with a formidable option that meets the US market where it stands today in terms of payment infrastructure. In theory, Samsung could have wider acceptance than Apple Pay at launch in US because it can be used at POS terminals accepting both NFC payments, as well as traditional mag stripe cards.
Samsung’s recent entry into the space will further drive consumer interest around mobile wallets as this aspiring payment type continues its march to becoming a mainstream payment option. The recent entry of a brand like Apple with its ardent followers has raised the public’s awareness of this aspiring payment method in just a few short months. What is particularly noteworthy about the arrival of these two smartphone behemoths is that both are beginning to establish a framework for more ubiquitous mobile payments across their far-reaching ecosystems and that is what this still-burgeoning industry needed. Like Apple, Samsung has lined up several partners to support its mobile payment systems, including financial players, such as Visa, MasterCard, American Express, Bank of America, JP Morgan Chase, Citi, First Data and others. That is the first step, but others need to follow if this aspiring payment method will make the transition from industry pipedream to mainstream.
Consumers still need a compelling reason to adopt
Despite the recent entry of brands like Apple and Samsung into the mobile payments mix, consumer adoption will remain slow in the coming years until consumers have a compelling reason to adopt. That being said, the Magnetic Secure Transmission technology used in Samsung Pay could have broader implications beyond a merchant simply being able to accept mobile payments from the major card payment networks. Even after the US completes its shift from mag stripe to chip-based cards, this technology will continue to have relevance for gift cards, as well as loyalty and membership cards. That functionality could be an important differentiator for Samsung moving forward and ultimately help to drive adoption of its mobile payments system.
Mobile payments have failed to become ubiquitous for a number of reasons, including consumer security and privacy concerns, as well as a lack of the necessary infrastructure to execute the payment. Ultimately, mobile payments must be as cheap, safe and easy to use as traditional payment methods to even be considered a viable payment option. In markets with a more advanced payments system, mobile wallets will have to do more than just execute a payment. Consumer uptake of mobile payments will be directly related to the value add received from using mobile phones in lieu of the leather wallet.
In order to entice consumers to substitute their leather wallet for their mobile phone, mobile wallets will have to provide additional value, which is likely to be derived from an integrated loyalty platform. Loyalty, which has already shown to be an important factor in driving consumer payment choice, will be just as important in the mobile payments revolution. The loyalty that will drive mobile payment adoption, however, will be about more than simply points, miles or free hotel nights. Moving forward, loyalty driven mobile payment initiatives will be about one-to-one customer engagement and the individual consumer experience that today’s shoppers want and expect. A mobile platform, such Apple Pay or Samsung Pay, could provide the backbone for this type of experience and give consumers that compelling reason to adopt mobile payments.
The mobile payments race is on
After years of hype, the mobile payments ecosystem is beginning to take shape and both Apple and Samsung aim to compete. Numerous players have been racing to control the flow of this digital money across billions of smartphones, as well as millions of online and physical point-of-sale locations. The stakes are high for whatever platform or platforms are the first to get the mobile wallet right and gain significant adoption in the marketplace. Depending upon the business model behind the mobile wallet, these aspiring mobile payment providers could stand to gain access to consumer purchase data and/or a cut on those millions of mobile transactions. Neither Apple nor Samsung have access to consumer payment data through its mobile payment systems.
Mobile commerce is expected to reach almost US$300 billion in 2014 across the 46 markets researched by Euromonitor International. Most impressively, mobile payments is expected to expand nearly four-fold over 2014-2019 in those markets, to exceed US$1 trillion in payments made through tablets and mobile phones. In-person mobile payments are expected to expand nearly 12-fold during that same timeframe from US$8 billion in 2014 to US$104 billion in 2019 in the 46 markets researched by Euromonitor International. Nevertheless, the combined in-person and remote mobile payments total will amount to only 4% of all card payment volume in 2019, meaning that the untapped market even 10 to 20 years from now will remain enormous.