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

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.

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