Samsung's (NASDAQOTH:SSNLF) mobile payment solution is coming. On September 28, Samsung Pay will roll out to American owners of the Galaxy Note 5 and Galaxy S6 Edge+, with support for Samsung's other flagship phones -- the Galaxy S6 and Galaxy S6 Edge -- coming through an eventual software update.
That's almost a year to the day following the release of Apple's (NASDAQ:AAPL) competing payment service, Apple Pay, but Samsung Pay could ultimately prove to be far more successful. Samsung Pay is built on better technology, and could see more widespread use.
Samsung solves the NFC problem
In its execution, Apple Pay is nearly flawless, allowing a quick tap of an iPhone or Apple Watch to replace a traditional credit card swipe. It's faster, more convenient, and potentially more secure than paying with plastic. But Apple Pay has a big problem: most retailers don't accept it.
It's largely an issue of technology. Like Google Wallet, a similar service from the search giant that predated Apple Pay by several years but failed to catch on, Apple Pay requires the use of NFC-equipped terminals to function. According to the Aite Group (via NFC World), just 28% of credit card terminals were equipped with NFC technology at the end of 2014. In June, Reuters conducted a poll of the 100 largest merchants in the U.S. and found that about two-thirds of them did not plan to accept Apple Pay in 2015.
In time, this situation is likely to change. Aite Group estimates that, within 3 years, 90% of credit card terminals will support NFC. But in the meantime, Apple Pay remains mostly a novelty -- with few merchants accepting it, consumers are still forced to carry around their credit cards.
Samsung Pay, however, doesn't have this problem. Samsung Pay will work with nearly any credit card terminal -- NFC-equipped or not. Samsung's latest Galaxy handsets are capable of emitting a magnetic pulse that mimics the act of swiping a traditional credit card. In other words, just about any merchant that accepts credit cards will accept Samsung Pay. Admittedly, it's not perfect -- it won't work at ATM machines, for example -- but it's much closer to a wallet replacement than Apple Pay.
Enough to drive more Galaxy sales?
Apple collects a modest fee (0.15%) on every transaction it facilitates with Apple Pay. But the same is not true for Samsung Pay -- Samsung collects nothing. Instead, the Korean tech giant will benefit only if it can convince smartphone buyers that Samsung Pay is a compelling enough feature to choose its handsets over those of rival vendors.
Will that happen? It's difficult to say. iPhone owners are famously loyal. Samsung Pay is an interesting perk, but it doesn't seem enticing enough to convince longtime iPhone users to ditch Apple's familiar ecosystem for Android. It may, however, allow Samsung to retain its customers, and poach new customers from within the Android ecosystem. Google's other hardware partners, such as LG, Motorola, and HTC, are not offering anything comparable to Samsung Pay with their competing Android handsets.
Among Android users, Samsung remains dominant in the United States. But competition is an ever-present threat. Samsung Pay is a useful, unique perk that should help its handsets stand out.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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