Next week, Samsung (NASDAQOTH: SSNLF) will launch its mobile payments feature in the U.S. If there was ever a time when Samsung needed something new to help the company, it's now.
According to Gartner, Samsung's smartphone unit sales fell 5.3% during the second quarter, and revenue fell 8.4% year-over-year. That marks the seventh consecutive quarterly drop in revenue for Samsung, and it comes at a time when its primary mobile competitor, Apple (NASDAQ:AAPL), increased iPhone sales by 36%.
Samsung is hoping that Pay will help differentiate its smartphones from other Android devices, and at the same time show consumers that it has similar high-end features that iPhones feature. But launching a successful mobile-payments platform in the U.S. is easier said than done -- just ask Apple.
Samsung Pay vs. Apple Pay
Trying to make it big in the mobile payments segment is a worthwhile effort. By 2020, more than $130 billion will be spent worldwide using near-field-communication (NFC) payments, but getting there won't be easy.
Apple Pay launched last year at 200,000 locations across the U.S. and has since spiked to more than one million locations. Apple's system used NFC to transfer a secure token between an iPhone and the payment terminal, and it authenticated using Touch ID on the smartphone. The feature also works on Apple's new Watch. But despite the increased rollout, research from Trustev found that 79% of those with access to Apple Pay -- specifically iPhone 6 and 6 Plus users -- have never used the feature.
Samsung Pay similarly works with NFC but can also be used at payment terminals that only have magnetic credit card processing. That could potentially be a big advantage for Samsung, as its service will be compatible with about 90% of current U.S. payment terminals without the need to upgrade to NFC.
Samsung Pay has only been available in South Korea prior to its U.S. launch, but the company said in a blog post that it has processed more than 1.5 million transactions worth $30 million in its first month. Samsung says that of the users who have tried it, about 10% use it everyday.
Injong Rhee, executive vice president of Samsung Electronics and head of Samsung Pay said, "Although the details on Samsung Pay usage are constantly being updated, the response we've received so far has been beyond our expectations."
This isn't going to be easy
There are several hurdles in the way for Samsung Pay's U.S. launch. First, the U.S. hasn't exactly been the most forward-thinking when it comes to payment technology. We're only now just getting credit cards with the chip-and-pin system and updating terminals for next month's deadline. Many parts of the world have had this technology for years.
Second, Samsung Pay's initial success comes on its home turf of South Korea, and it will be far harder to replicate that same success in the U.S. Between January and April of this year, Apple held 41% of the smartphone market, and Samsung came in second with about 29%. If Apple is still having a hard time getting users to make purchases with Apple Pay after launching the service a year ago -- and having a dominant smartphone position -- then it will be even harder for Samsung Pay.
That's not to say Samsung Pay is doomed in the U.S. But if investors are looking to Samsung Pay to help turn around smartphone sales in any measurable way, they will likely be very disappointed.