Silicon Valley is in a rush to replace your credit card -- well, the actual card itself. The two largest mobile operating system vendors -- Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and Apple (NASDAQ:AAPL) -- are looking to replace plastic with their spin on the mobile wallet: Android Pay and Apple Pay, respectively. But it appears there's a third new entrant to compete with Apple on the high end while starting an intra-device rivalry with Google's Android Pay.
That's right: Google Android's most-popular luxury vendor, Samsung (NASDAQOTH: SSNLF), is testing its version of a wallet/payment system, unoriginally dubbed Samsung Pay. Samsung Tomorrow, the company's official blog site, outlines its limited test for select customers in its home country of South Korea. When it comes to handset competitor Apple, however, the company does have a rather large advantage with its Samsung Pay technology.
Two ways to pay
Although Samsung's a little late to the party, at least it is bringing a somewhat novel product to market. Unlike the aforementioned Google Wallet and Apple Pay that use only NFC (near-field communication), Samsung Pay uses both NFC and magnetic secure transmission (MST) technologies to transmit payment from phone to terminal. That's important and a differentiator as Apple Pay required many vendors to upgrade terminals to include the NFC technology and some vendors have even pulled NFC-compatible terminals (more on that later).
Samsung's able to offer this two payment communication system by acquiring the technology through its purchase of LoopPay earlier this year. While MST doesn't require much from merchants and vendors, as it's mostly compatible with existing card readers, it does require new technology to be present in the phone. Reading the tea leaves from Samsung's press release, it seems the Galaxy S6 and Galaxy S6 Edge are the only compliant units for the technology for now.
Strangely enough, MST technology could benefit from a dispute between a consortium of merchants and Apple. After backing a competing technology for payments called CurrentC, which is cheaper to conduct transactions on than credit card fees, many vendors have slowly removed NFC-enabled terminals or turned off the functionality. If you've ever tried to use you NFC-enabled credit card or Apple Pay at a terminal, only to be told the NFC reader is "broken," it's possible that merchant supports CurrentC (and "broken" should mean disabled). Considering Samsung offers MST, it could increase its adoption by default.
One tough transaction
That said, the path forward for Samsung Pay is rather perilous. First, both Google and Apple benefit from first-mover advantage. Although there are some holdouts to NFC and Apple Pay, the company had added card processors, banks, and merchants feverishly including the four big card systems, 2,500 banks and financial institutions, and 1 million U.S. merchants and locations. Although there are holdouts, many are working with Apple.
But in all fairness, it isn't as if Apple Pay (or Samsung Pay, for that matter) are game-changing pieces of technology. Rather, they are ecosystem builders -- small, convenience- and value-adding features that add up to keep you locked into a brand and ecosystem. Unlike Apple, however, Samsung doesn't own its ecosystem, but plugs into Google's Android. And the issue with that is apparent as both Google Wallet and Samsung Pay are options for Galaxy S6 users. And unlike Google Wallet's inclusion on Apple's iOS that has been stripped of its critical pay functionality, Google Wallet and Samsung Pay are mostly similar in scope.
Essentially, Samsung is competing against its operating system vendor in an intra-device mobile-wallet war. If anything, the big story in Samsung's new Pay feature is the continuation of the company's decreasing dependence on Google. For Samsung Galaxy S6 owners in the U.S. using Google Wallet, Samsung's Pay offering should arrive soon.