Good news for Galaxy users who’ve been looking to turn their device into a digital wallet but for one reason or another didn’t care to use Apple Pay or Android Pay: Samsung Pay is almost here. The electronics giant, having announced the service in March, will officially launch Samsung Pay in the U.S. on Sept. 28.
For some observers, the knee-jerk response might be to question why Samsung (SSNLF) would bother getting into the digital payment game already clearly dominated by Apple (AAPL) and Google (GOOGL).
There’s a good answer to the question, however — Samsung Pay is distinctly different than Apple Pay and Android Pay in that it doesn’t require near-field communication (or NFC) hardware to process a payment.
If nothing else, it’s an alternative to the somewhat short-sighted payment tools offered by Google and Apple. The problem is, it’s unlikely to be seen as anything more than just a Johnny-come-lately alternative that missed its best window of opportunity.
Introducing Samsung Pay
Samsung Pay was unveiled on Thursday morning as part of a showcase of the company’s newest smartphones, the Galaxy Note 5 and the S6 Edge+. As part of the launch, CEO J.K. Shin demonstrated some of the key features of each 5.7-inch phone, which included the payment system.
The feature is something of a double-barreled option.
Like Apple Pay and Android Pay, properly-equipped Samsung devices will be able to transmit credit card token data to a merchant using near-field communication. Users will simply need to swipe the screen and select one of the cards programmed into the phone. Payments will be authorized using either a fingerprint or a PIN number, which of course will require consumers to hold the device relatively close to the seller’s NFC antenna.
NFC isn’t the only way Samsung Pay can work, however. Newer Samsung phones can also create a traditional magnetic field to mimic the magnetic strip on the back of a credit card to facilitate a credit transaction. The transaction is accomplished by simply holding the phone near most modern card-readers.
The phone will decide which of the two method to use depending on the checkout system it finds at the time of purchase.
It should be noted, however, the attraction to Samsung Pay is as much the pervasiveness of retailers who can utilize it as it is a technological convenience.
NFC is the inevitable future, but for the time being, most merchants still use what’s called a “magnetic secure transmission” — a swipe of credit card — to complete a transaction. As such, newer Samsung phones will be acceptable payment tools at the vast majority of merchants as soon as Samsung officially turns the technology on next month. Apple Pay, in contrast, will still only work at about 1.5 million locations by the end of this year despite a concerted effort to add as many vendors to the list as possible since the Apple feature was launched in late 2014.
Also, due to the flexible nature of the hardware (and unlike Apple Pay and Android Pay), Samsung Pay will work with all the major payment networks like Mastercard, Visa, American Express and Discover. Meanwhile, Apple’s digital payment architecture requires each individual credit card-issuing bank to sign up, as well as individual retailers.
Samsung has another edge on Apply Pay — goodwill with card issuers. Samsung won’t make a penny by serving as a payment middleman, while Apple is charging credit card issuers 0.15% of each transaction it handles.
In those lights, it’s a competitive product.
Cool, But…
J.K. Shin acknowledges that Samsung Pay is designed to make Samsung phones more attractive to potential buyers rather than serve as a profit center in itself. It may be too little, too late, however.
It’s too late in the sense that Apple Pay and Android Pay are already on the landscape, and have had a chance to take a commanding lead in the digital payment arena whether or not they’re the best possible solution. Indeed, Android Pay will be an alternative mobile wallet on the very devices Samsung aims to use as a platform for Samsung Pay. Being first or even second to the party allows those organizations to establish the habit and expectations among consumers, making it tough for another player like Samsung to break in.
It’s too little in the sense that even as cool as the technology is, it’s misguided to think pulling out a credit card is some massive burden on consumers.
For better or worse, whipping out the plastic is comfortable, even if it takes a little longer than paying through device-proximity. Plus, though it’s arguably safer and more secure; consumers largely distrust digital payments, yet remain comfortable with card swipes.
Shin also joked that “your wallet is going to miss you” when introducing the service, glossing over the fact that most wallets will still be carried anyway, as they hold things like driver’s licenses, club-membership cards, and that pesky cash. The physical wallet isn’t going away, giving consumers one less reason to adopt digital wallets.
This isn’t to say nobody’s going to use Samsung Pay. In fact, it would be naive to think it won’t cultivate a decent-sized pool of users. No one is going to buy a Samsung phone specifically to use the feature, though. It’s not a game-changer.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
