It’s been a little over a month since Samsung Pay’s launch in South Korea, and today the mobile payment service is available to owners of select Samsung phones in the US. But a year after Apple Pay launched, and without the broad reach of Android Pay, which launched earlier this month, does Samsung have a product that anyone will use?
First, let’s start with the restrictions: at launch, Samsung Pay will only be available on Galaxy S6 edge+ and Galaxy Note 5 devices, as well as Galaxy S6 and S6 edge devices. In addition, Samsung still hasn’t brokered a deal with Verizon to allow compatibility on that network, so it will only work if your select Samsung device operates on AT&T, Sprint, T-Mobile, or US Cellular. When it comes to card networks, Samsung Pay is at least playing with a full deck here: both MasterCard and Visa, the two biggest card networks in the US, are on board. But Samsung Pay needs the approval from card issuers as well, and so far only people with cards at US Bank, Citi, Bank of America, and American Express will be able to use Samsung Pay.
All those caveats mean that the number of people in the US who will be able to take advantage of Samsung Pay at launch is not very big. Add to that the fact that on Samsung’s phones, its service will be in direct competition with Android Pay, Google’s second, more mature mobile payments service. (Google Wallet launched) in 2011.
Bob Graham, head of Banking and Financial services at business consulting firm Virtusa, sees the amount of work that Samsung has to do building partnerships with banks as an impediment to its success at launch in the US as well. "Apple Pay, with its head start of nearly a year, has over 500 banks enrolled in its program, and while figures have not been released yet from Samsung, it's more than likely that the number of US banks will be similar to the couple dozen that Apple had when it launched. Therefore a bigger impediment for Samsung will be the number of banks supporting it combined with not having Verizon on board."
But it would be wrong to dismiss Samsung Pay out of hand for these setbacks. That's because the trick up the Korean company’s sleeve is a technology called Magnetic Secure Transmission (MST), which emulates a magnetic stripe card—the dominant kind of plastic card in the US. In February of this year, Samsung bought that technology for $250 million from a company called LoopPay, which was developing a mobile phone accessory to digitally store cards.
To understand how MST works, let's take a look at what happens when you pay with a magnetic stripe card. On the card, the stripe contains magnetic particles whose orientation is manipulated to write card information. When you go to swipe a magnetic stripe card at a terminal, that terminal contains a reader head, which the magnetic stripe passes over.
With MST, a device placed close to the reader head can send it magnetic data. George Wallner, a co-founder of LoopPay who invented MST technology, was granted a patent for the technology in September 2014. The patent explains, “The moving magnetic stripe, which contains the alternating polarity magnetic domains, creates a fluctuating magnetic field within the narrow sensing aperture of the reader head.”
“The MST device shapes the stream of pulses to compensate for shielding, eddy current losses and limited inductance value of the magnetic read head,” the patent adds. Samsung’s newest phones contain what a Samsung spokesperson called a “small magnetic coil,” which eliminates the need for a separate phone case or dongle.
This means that with Samsung’s newest phones, tap-and-pay ought to work at virtually any merchant terminal with a swipe card reader. With Android Pay and Apple Pay? You can only pay at newer terminals that are equipped with Near Field Technology (NFC) readers.
There’s another wrinkle in the story though—magnetic strip card readers are on their way out. On October 1, card networks will institute a fraud liability shift that is intended to force merchants to update their terminals to accept chip cards like the kind you’ll see in Europe or Canada. Because of this requirement, many terminals will already include the NFC technology that makes Apple Pay and Android Pay operational. Although the shift will be slow, and magnetic stripe card readers will be around for a while still, eventually Samsung’s clever technology will be obsolete. But that’s not too much of a problem for Samsung—Samsung Pay still works over an NFC connection, and the company's phones already include the necessary NFC chip (which, by the way, currently supports Android Pay).
In fact, NFC is Samsung Pay's preferred method of transmitting information because NFC is supported by the most recent card security standard, called EMV, where MST is not. In an e-mail to Ars, Shoshana Rosenfield, vice president of digital payments for MasterCard Worldwide, explained earlier this year that "with Samsung Pay, if the device detects NFC at the terminal, the transaction will be routed as an NFC transaction. If there is no NFC capability on the terminal, the consumer has the choice to initiate a magnetic stripe induction transaction. When the transaction is conducted via NFC at terminals that are capable of capturing EMV contactless data, they take advantage of EMV-level security. MasterCard has been a strong proponent in the transition within the US to EMV."
So, will Samsung Pay change the way you shop? Ars has argued that the October 1 chip card shift will give mobile payments a fighting chance of adoption due to the extra friction customers experience when paying with chip cards. Still, Samsung’s MST technology solves a problem that doesn’t really need solving at the moment, because swiping a magnetic stripe card is still easy enough that people may not decide to replace that action with their phones. On the other hand, Samsung’s technology decidedly trumps Apple’s and Google’s in terms of the number of terminals that Samsung Pay will work with. That could give it some traction against its larger, more entrenched competition at launch.
As someone who works in the banking industry, Graham maintains skepticism. "Long term, Samsung Pay, Apple Pay, and Android Pay all face the same challenges in adoption. They need to convince consumers that not only are mobile payments secure, but also that mobile wallet is just as easy if not easier to use than plastic, and lastly but most importantly, that they bring unique benefits that you do not get from plastic card usage."
At least in South Korea, Samsung is already reporting success. Last week, the company wrote in a press release that in Samsung Pay’s first month, $30 million (₩35.1 billion) worth of purchases were processed through the payments platform. 1.5 million transactions were initiated, and of active users of Samsung Pay, 10 percent used the service daily. Android Pay is too new to have similar data, and Apple closely guards such statistics, so we can’t yet gauge how well Samsung Pay did in its debut month.
Still, it's worth watching, and maybe even worth trying out, if you have the necessary hardware and bank with a supporting card issuer.
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