First announced in March, Samsung Pay is slated to launch in the second half of this year. While Samsung hasn’t announced a date, speculation is for a launch in September, when the company typically introduces its latest Galaxy Note mobile phone. Meanwhile, Samsung has been working behind the scenes to get there, having announced a collaboration with network partners such as MasterCard and Visa, and some of the largest banks, including JPMorgan Chase, Bank of America, Citi and U.S. Bank.
Extending existing scale
Big-time backing of the industry titans is certainly a plus. But a few other dynamics could make Samsung a strong player in the wallet wars.
First is its market share of handsets. Samsung smartphones represented 25 percent of unit shipments worldwide in the first quarter, according to International Data Corp., a technology consulting firm. That compares with 18 percent for Apple iPhones.
"In many markets, Samsung is the No. 1 handset manufacturer in the Android community," notes James Anderson, group head and senior vice president for mobile and emerging payments for MasterCard, based in Purchase, N.Y. "That gives them a critical mass around the world."
Yet perhaps more significant is Samsung Pay’s ability to quickly leverage terminal technology already out there. Samsung Pay will use contactless payments not just at terminals with near-field-communication (NFC) capability, but also at any point-of-sale (POS) device that takes magnetic stripe cards — in other words, all terminals.
To enable the phones to communicate with magnetic stripe readers, Samsung in February purchased LoopPay, a company that used a dongle that hooked up to phones and communicated with terminals using an antenna. So far Samsung has already integrated the technology into its new Galaxy S6 and Galaxy S6 Edge phones.
Samsung Pay will use contactless payments not just at terminals with NFC capability, but also at any POS device that takes magnetic stripe cards – in other words, all terminals.
These devices and future upgrades of other Samsung phones will have the capability to use either NFC or "magnetic secure transmission" (MST) technology at terminals. This could allow the wallet to quickly gain scale, says George Wallner, chief technology officer of LoopPay and founder of Hypercom.
"What sets Samsung Pay apart is that it will work nearly everywhere from day one," Wallner says. At a minimum, "wide-scale adoption requires wide-scale usability. Without that, the utility for the consumer is limited, and wide-scale adoption is not going to happen."
The debut will come at a time when retailers on the whole are slow to roll out NFC. While newer terminals have NFC capability, it’s often not being used. Home Depot, for example, turned off NFC this year in its terminals in order to concentrate on the rollout of EMV.
Solving for an awkward POS evolution
Wallner notes how the retail point of sale is in transition, evolving slowly and very unevenly from magnetic-stripe-only to multi-mode terminals that will have both NFC, mag-stripe readers and EMV. For the next three to five years, there will be a chaotic mix of different capabilities, he predicts.
"To have utility, the wallet should be compatible with all terminals, old and new," Wallner says. "For many years, that will be the only way to satisfy the need for universal acceptance, without which adoption is not likely to happen."
For maximum consumer convenience and utility, Samsung Pay will provide compatibility backward and forward, Wallner argues. He likens it to HD televisions being able to receive a regular broadcast, and USB 2 ports accepting USB 1 chords.
Valid concerns on mobile
While it all makes sense, that’s not to say detractors are off base.
One concern is whether Samsung can get enough issuers on board, given that it is coming to market almost a year after Apple Pay’s entrance. "Given the modest adoption of consumers and merchants that Apple has seen, that makes financial institutions a little more cautious in terms of wanting to jump full bore into Samsung Pay," says Hugh Gallagher, principal at First Annapolis, a consulting firm based in Annapolis, Md.
Meanwhile, Samsung Pay must also face Android Pay, which is due to launch later this year when Google rolls out Android M, its next mobile operating system. Smartphones with Android accounted for 78 percent of shipments in the first quarter, according to IDC. Android Pay will be integrated with Android M by default, so Samsung Pay users would need to take an extra step to set up the app.
One concern is whether Samsung can get enough issuers on board, given that it is coming to market almost a year after Apple Pay’s entrance.
"It may be preloaded onto the phone, but you are still having to seek out that app and sign up," says Jordan McKee, a senior research analyst at 451 Research. "It makes the process less seamless than it should be."
Another issue is ownership. Apple and Google have full control and access to what the consumer is doing, says Tim Sloane, vice president of payments innovation at Mercator Advisory Group, a consultant based in Maynard, Mass. That could give them a leg up in being able to pair up with merchants in offering rewards.
When a user does a restaurant search on a Samsung device, it's Google that knows what the consumer is looking for. "In the next series of battles that are coming, I see Samsung less well-positioned to be able to provide value to merchants around incentives, promotions and managing prepaid cards," Sloane says.
Not one, but several wallets
Clearly, there are many moving parts and targets in all the prognostication related to Samsung Pay. But the card networks are betting on a world of multiple wallets and building out their architecture to support any wallet. MasterCard, for example, has developed a platform to allow any connected device to become a commerce device to make and receive payments. Dubbed "MasterCard Digital Enablement Service" (MDES), it is currently being used by Apple Pay but will soon support Samsung Pay and Android Pay as well.
So while the jury may be split on Samsung Pay, its coming debut might actually help solidify acceptance of mobile wallets. "The future of payments is digital," Anderson says. "The amount of time and energy that people spend on digital devices is only going to increase."