By Ray Birch
BIRMINGHAM, Ala.—Has Samsung leapfrogged Apple in the mobile payments space?
Whether or not that is the case with Samsung’s introduction of Samsung Pay, experts say the competition only bodes well for issuers (see additional coverage March 6).
On March 1, Samsung unveiled its own digital wallet in response to Apple Pay during the 2015 Mobile World Congress in Barcelona, Spain. Called Samsung Pay, the payments solution—available on the new Galaxy S6 and S6 Edge—works with traditional magnetic-stripe terminals, and also comes with NFC capability. The company says the system will likely be accepted at over 90% of retail locations, giving it potentially 10 times the reach of Apple Pay.
Samsung recently purchased LoopPay, the payments tech behind Samsung Pay. LoopPay works differently than Apple Pay, using what it calls "magnetic secure transmission," which "spoofs" a traditional card swipe with magnetic fields when a user holds their device near a payment terminal.
While LoopPay’s current POS acceptance is much greater than Apple Pay’s NFC-based system, there is debate over how well the solution functions at existing mag-stripe terminals—and greater concern over how LoopPay might perform once chip-card readers become widespread after the October 2015 Visa and MasterCard liability shift deadline. Most new chip-card readers come with NFC built in, which will give a big boost to Apple Pay.
Samsung Pay could begin to gain a great deal of traction with consumers because of its greater POS acceptance, said Bill Hardekopf, CEO of LowCards.com, noting there are more phones on the market with the Android operating system than iOS.
“This could be a huge development for the payments industry. It’s going to be interesting to see what happens,” said Hardekopf. “Samsung has run up against some tough times in their phone market. This might be the thing to bring them out of the doldrums.”
Tom Davis, senior vice president, emerging payment technology at CSCU in Tampa, Fla., thinks Samsung Pay has a good chance to get off the ground running.
“I think that a user who buys a phone based on digital wallet functionality would probably look at a Samsung phone and say it has more likelihood of being successful with mobile payments,” said Davis.
David Hall, SVP of vendor alliance partnerships at PSCU in St. Petersburg, Fla., sees Samsung Pay as a move to gain share quickly—but he is not sure how long Samsung’s success might hold out with EMV on the way.
“This is a short-term scalable solution, riding the mag-stripe rail, that will certainly get Samsung Pay accepted at lot of locations,” said Hall. “But mag-stripe is legacy technology that will get replaced, and is not a long-term solution.”
Analysts note Apple Pay is enabled for EMV, calling LoopPay more of a retrofit. But Samsung Pay can lean on NFC, experts noted, and LoopPay has stated that future upgrades will handle chip and PIN. And many believe it will be the operating systems in the end that eventually determine a winner in mobile payments.
Davis believes Samsung will add QR code payment capability to its phone.
“I think Samsung is trying to cover as many (payment) bases as it can,” observed Davis. “If I had a Samsung device that had QR capability, magnetic secure transmission (LoopPay) and NFC, I now have three means to have my mobile payment accepted at the point of sale—which is more than anyone else. This is somewhat like the early days of the ATM card, where we had 50 different logos on the card and 50 different logos on the ATM. And as long as one matched up, money came out of the machine.”
LoopPay does have some problems, according to reports that indicate the payments solution does not work as widely as LoopPay claims. It doesn't work with transit fares, parking meters and other machines that require the customer to fully insert a card, like an ATM.
“I have had LoopPay on my phone for a while, as an experiment,” said Davis. “I would say the technology is interesting. LoopPay’s website says
it will work at 90% of the POS terminals, but then you go to the gas pump and it doesn’t work. You send the company an e-mail and they reply saying LoopPay does not work well at automated fuel dispensers.”
Davis said he has learned that some of the newer mag-stripe readers have a switch inside the channel to swipe plastic that does not get activated when using LoopPay.
“In this case your LoopPay transaction errors out,” said Davis, who has run into the problem at Publix grocery stores. The LoopPay phone case has a compartment to store mag-stripe plastic as a backup. “I would say LoopPay, for me, has worked OK. It has not been as great as I hoped it would be.”
LoopPay’s ability to work with EMV terminals is being debated. LoopPay’s instructional video explains the tech works with EMV capable terminals now, while some reports indicate that that capability will be available in a future release.
Hall said LoopPay does not work with EMV POS devices at this time. Hall explained that since LoopPay spoofs a mag-stripe swipe, the EMV reader becomes “conflicted,” thinking a plastic card is involved in the transaction and calls for the user to dip the card into the EMV reader. “Only you can’t dip a phone.”