Samsung Pay has all the tools it needs to surpass Apple Pay

21 Comments

Credit: Samsung

A lot of the features in the new Galaxy S6 and S6 Edge, like curved edges and glass-and-metal design, are examples of Samsung playing catch-up on the latest smartphone trends, but Samsung’s new mobile payments app stands apart. Apple and Google may have brought their contactless payment technologies to the market first, but Samsung Pay fills in sizable gaps that Apple Pay and Google Wallet have in their services.

Samsung Pay uses both near-field communications (NFC) and magnetic secure transmission (MST) technology from LoopPay. That means that it can not only make the same secure contactless transactions that [company]Apple[/company] Pay can, but it can also make “swipe” purchases on the vast majority of older payments terminals that haven’t upgraded to NFC. Samsung has also retooled the new smartphones’ fingerprint sensors so they work with a press rather than a swipe, making it easier to initiate a purchase with a thumb tap.

Just as significant as the technology is Samsung’s broader financial ecosystem. It’s brought [company]MasterCard[/company] and [company]Visa[/company] to the table as partners along with four of the largest card-issuing banks: [company]JP Morgan Chase[/company], [company]Bank of America[/company], [company]Citi[/company] and [company]US Bank[/company]. (At the launch event, Samsung CEO JK Shin said these were just a few of the financial deals Samsung had signed.) Banking deals were one of the key reasons Apple Pay was a big initial hit, as consumers could load almost any of their existing debit and credit cards into the iPhone’s contactless wallet.

The new Galaxy S6

The new Galaxy S6

For Samsung, those bank deals are particularly important because the biggest selling point for its mobile wallet is that it will work on a far larger variety of terminals in the U.S. than Apple Pay or any other NFC-only payment app. If the banks hadn’t gotten on board Samsung wouldn’t have been able to make that argument come this fall.

The U.S. is finally making the leap to EMV credit cards, which use a smart chip to send encrypted data to a payments terminal. It’s a much more secure technology, and Samsung’s MST technology can’t emulate it the way it can the numbers stored on the mag stripe of credit. But with the banks apparently lining up to work with Samsung Pay, that’s not a problem Samsung has to worry about anymore. The banks can simply pass that encrypted card data from the cloud to a secure element in the Galaxy S6 or S6 Edge, which the phone then passes either through its NFC radio or magnetically, depending on which technology is available at the terminal.

Samsung Pay will not only make both “smart” and “dumb” transactions, so to speak, but it has the potential to turn what would normally be insecure static payments into more secure, dynamic As LoopPay co-founder and now Samsung employee Will Graylin recently explained to me, MST can send dynamic data through a magnetic read head designed only to take static data. The terminal thinks it’s just getting a regular credit card number, but Samsung Pay could send out a prefix code that alerts the payment processor that the numbers it’s about to receive are EMV cryptograms. Samsung Pay can use the same method to send tokens — one-time-use numbers supported in the newest payment technologies — through even the oldest, junkiest card readers.

An earlier version of LoopPay's MST technology. Instead of living in a phone sleeve, LoopPay will be embedded directly into new Galaxy S-series phones.

An earlier version of LoopPay’s MST technology. Instead of living in a phone sleeve, LoopPay will be embedded directly into new Galaxy S-series phones.

MasterCard chief emerging payments officer Ed McLaughlin explained to me that the potential implications for the payments industry could be big indeed because the banks and consumers will no longer be tied to a particular type of transaction based on a merchant’s hardware.

“The type of payment you make is a business decision, not a technology one,” McLaughlin said. “This is a clear way to work with older [payment terminal] stock out there.”

While Samsung seems to have minded all of the technical and financial details, we’re going to have to see Samsung Pay in action before we can levy a final judgment. I was at the Galaxy S6es’ big launch at Samsung’s Unpacked event at Mobile World Congress on Sunday, and while Samsung executives showed a video of Samsung Pay in action onscreen, there didn’t appear to be a live demo at the event. None of the new Galaxy S6 and S6 Edge phones I played with at Unpacked even have the app installed.

If Samsung Pay launches with a bang this summer, Samsung will have a compelling mobile wallet that can rival Apple Pay in many ways, but it will only have that advantage for so long, especially in the U.S. As merchants upgrade their payment terminals for EMV, they’re also upgrading them to support NFC. Within a year or two, NFC transactions could become the norm rather than the exception.

MWC-2015-ticker

21 Comments

Dan

I’m surprised there is no reference to the Synchrony Financial partnership here. Allowing private label credit cards is a big deal for merchants. With a private label card the transaction fee is zero for retailers, and in some cases they make money!

Matt Perkins

Problem is while Samsung has the user base to surpass Apple Pay, they don’t have the spenders to take on Apple Pay. Remember iPhone users make a lot higher average annual income and they spend more money (proof is in the fact the average Android user has a budget smartphone not a premium one and iOS accounts for over 60% of all mobile sales). Another factor that’s missing is how much safer and more private Apple Pay is than the rest. There’s a reason CVS was ok with accepting Google Wallet but not Apple Pay. It’s because Android payment systems give merchants the information they want, Apple Pay doesn’t.

Dave

I think the concept is introducing another degree of weakness on the merchant side.

Think about the following two seconds (it may be “inspiring”):
“but Samsung Pay could send out a prefix code that alerts the payment processor that the numbers it’s about to receive are EMV cryptograms”

It’s easy to guess that there may be a little problem with the concept : it requires merchant to take the habit to accept simulated magstripes. But the nature of the simulated magstripe is controlled by hardware the merchant has no idea about what it does (for him, the customer phone and tools are just a black box, the merchant will not verify what software is running on the customer phone).

So what happens if the transmitted data is just stolen data from a magnetic only card? The merchant terminal won’t notice by itself, the merchant payment processor is likely to accept (else it wouldn’t accept transaction from the real magnetic card), so there is a huge problem here.

In fact it could be solved by using a new software on the terminal (and a quite complex procedure): when the acquirer / payment processor get the information, it knows what type of payment it is and then it may ask the merchant to confirm that the customer is using a real magnetic card. You can be sure it’s complex enough to be avoided…

But how the merchant may protect itself from “customers” using the new way of payment to send fraudulously cloned card data?

It seems like telling merchant that they should accept any kind of stripe whatever the support is. A normal merchant wouldn’t accept as a credit card cloned data written to a paper or plastic card that doesn’t even look like a credit/debit card with logos, but now it should accept and trust any kind of data sended from complex and obscure hardware?

Or is there something I missed?

Suresh Hattangadi

Whatever you say , Samsung is still a follower and not a leader.

ewalsh5

i don’t know if too many people are ready to adopt it though. leave aside the fact that samsung is already late to the party .. apple pay themselves haven’t exactly set the register ringing with adoption (no matter what the apple users might be delusional about their market share). until these apps leverage a cross platform solution with native management/ security and UX features, with tightly couple back end, yet enough leg room to scale the solution into a standalone pluggable across the board (think, Kony? – bit.ly/1CJh8ds ) there’s still some way before data trust and integration.

Mxoff

Seriously, are marketing people just so NOT innovative that they have to call it Samsung Pay and Android Pay !!!
I understand the need to counter competition but at least get slightly creative.

Joe Belkin

There’s only four problems.

NFC has already failed.
Android users have no money to spend.
Android users know better than to trust Samsung-Google with their financial information.
It’s not ApplePay – SamsungPay/Google Wallet is already branded as the second tier DISCOVER card of the “credit cards.”

Shopper

NFC most certainly has not failed! It is used in millions of POS terminals around the world for contactless payments under the Visa PayWave and Mastercard PayPass brands.

It’s hard to tell from this article, but it sounds like Samsung Pay and Apple Pay both use the same EMVco technology for contactless payment with a one-time token.

kdarty

Google just sealed the deal by acquiring Softcard which is already promoted by all Carriers. Samsung is late to the party with LoopPay but can still make use of Google Wallet with Softcard to remain relevant in the Mobile Payments arena.

kdarty

By the way, Google just announced “Android Pay” which provides an API that any Android Developer can use thus pushing Google Wallet / Softcard way ahead of LoopPay. Samsung can adopt “Android Pay” or continue pushing the theory that they are the center of the Planet. I personally do love Android but have never been a fan of Samsung and am very tired of them going against the grain. The more they chase after Tizen and try to compete in things like Mobile Payments the more users will start to notice that they aren’t really innovating at all. Have you seen the S6? Much like HTC’s One M9, there isn’t much innovation over last year’s model IMHO.

eideard

The “swipe” is irrelevant. Terminals have to be changed out to chip-and-pin by mid-October. Maybe your neighborhood cigar store won’t be ready; but, everywhere you will be doing serious shopping will have converted.

jjj

No system that is not open to all and doesn’t allow anyone to have too much leverage can ever win.
It’s that simple so anything that is not that won’t really remain relevant in the long term.

Bart

Copy, copy, copy, samsung is so LAME. What a bunch of morons. Look at any Samsuck phone prior to iPhone, THAT is their level of ‘innovation’.

They haven’t had the FIRST big thing. All they would need are people stupid enough to buy their products. But, everyone is leaving samsuck and Android in droves for iPhone.

Mike

iPod – check out Rio.
iPhone – check out LG Prada
iPad – check out tablets from years before
Bigger phones/smaller tablets – check out Samsung.
iWearable – hello?
NFC – android had it years ago.

What have Apple done first again?

macnificentseven48

As if Apple didn’t give it serious thought as to acquire some mobile payment system already in place or create its own or even doing both. There are plenty of ways to take shortcuts in this world but Apple chose not to. I’m not saying Samsung shouldn’t try to adapt an older system and bring it up to date. This way they’ve already bought their own customer base, as you say, to surpass Apple if that’s what’s most important. Samsung would be foolish if it didn’t at least try something. Samsung probably didn’t feel like waiting for Google to make a move since it’s already been about three years since Google Wallet was introduced and hardly made any headway at all.

Apple chooses to look forward with Apple Pay and it’s a smart way to get consumers locked into Apple’s ecosystem. Even being an Apple shareholder, I think it makes sense for consumers to have a choice about which mobile payment system to use. Eventually all terminals will be upgraded and then all payment systems will be fairly equal. Ease of use is nice but I hope Apple Pay is as secure as it can be and I’m counting on that.

Michael

A comment and two questions…

Comment: October 2015, all merchants are supposed to be able to accept EMV/chip cards, to the runway for Samsung pay may not be very long.

Question #1: Does anyone know the price difference between a merchant terminal that “just” takes a EMV/chip card and one that can accept NFC as well.

Question #2: Does anyone know when card issuers (the banks) can issue cards without the mag stripe?

Kevin Fitchard

Hey Michael,

I don’t have a specific answer to Question, but what people in the point-of-sale space are telling me is that EMV and NFC are being bundled in most new POS terminals in the U.S. You get one and you get the other.

Question 2: Cards will always have a mag stripe (or at least for a long time). This year they’ll start replacing all mag-stripe only cards with ones that have chips as well and by the end of the year about 50% of U.S. debit and credit cards will have EMV. It’s not that new cards won’t have the technical capability of making a mag stripe transaction. It’s the processors won’t accept mag stripe static data if an EMV transaction is available.

kenny

Hey Bart you made apple fanboys have no class. we all copy one way or the other. Google wallets came out first then apple made it better. let wait see samsung do with samsung pay if they copy each other is good for us. The consumers I love it. Combine nfc and mst is very good ideas. Let see how they do it.

Dave

Hi,

For question 2, the fact is that as long as magstripe only cards exist, the merchant is taking a risk of easilly accepting a cloned card. Although it may be thought that procedure for accepting such cards may become more complicated if such cards become rarely used.

For question 1, I’d add that a price difference for a new terminal with or without EMV is irrelevant. Future sales of non EMV terminals are unlikely to be huge. Merchants may want to use a magstripe terminal just because they already have it. Maybe EMV terminal will become cheap enough to change something.

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