Samsung Pay’s New Wrinkle Is a Stripe

Posted March 4, 2015

Following on the Heels of Apple Pay Comes Samsung Pay with Magnetic-Stripe Radio Field Technology

Samsung’s recent acquisition of LoopPay, which provides Samsung with near-field communication (NFC) and magnetic-stripe radio field capabilities, makes it possible for Samsung to launch Samsung Pay this summer. The service, which will be available on Galaxy S6 and S6 Edge smart phones, attempts to go Apple Pay one better by offering magnetic-stripe tech. This will presumably let consumers use Samsung Pay at approximately 8 million point-of-sale terminals in the U.S.

In a thorough and well-researched piece on digitaltransactions.net, Kevin Woodward discusses in detail everything from how Samsung Pay works to possible pitfalls it faces in the highly competitive mobile-wallet market.

The following has been excerpted from his article and edited to fit our format.

How Samsung Pay works

[A] registered user presses a button on a…fob or within the app on a smart phone…. [The user] selects the payment card and presses the Tap to Pay button. Data is wirelessly transmitted to the point-of-sale reader using a magnetic field that any POS terminal can read. The signal emulates the same magnetic field change as when a mag-stripe card is passed through a reader. Samsung is calling this “Magnetic Secure Transmission.”

Offering users more POS terminals than Apple Pay

[The] ability to use existing mag-stripe readers in POS terminals stands out from Apple Pay, which requires an NFC terminal. Estimates peg the number of contactless NFC POS terminals at approximately 220,000. There are an estimated 8 million POS terminals in the United States that accept mag-stripe payments.

Will consumers be confused?

[Consumers] may have some confusion about how to use Samsung Pay with a mag-stripe reader, says Pascal Caillon, general manager of North America for U.K.-based Proxama, a mobile commerce technology company. “For each different POS [terminal], consumers will have to determine where to place the handset next to the mag-stripe reader to conduct the transaction, leading to possible confusion or fear of trying it,” Caillon says. “Consumers really don’t know where to bring the phone to.”

Mag-stripe a short-term advantage that will peter out

While Samsung’s move in the highly-competitive mobile-wallet arena has potential, it may not pan out as well in the long term, analysts suggest.

“They’re putting a lot of energy behind the LoopPay acquisition, which is great in the short term,” says Thad Peterson, senior analyst at Boston-based Aite Group LLC. But over time, “NFC is the long-term solution.”

Payments ecosystem experience

Another hurdle may be Samsung’s lack of experience building a payments ecosystem, such as Apple has done, Nick Holland, a senior analyst who follows mobile payments at Javelin Strategy & Research, a Pleasanton, Calif.-based consultancy, tells Digital Transactions News. “It’s impressive technologically,” Holland says, “but that’s what Samsung is good at. But the problem is they’re not ecosystem builders.”

Then there’s Google

Google’s announcement… that it was buying Softcard, and struck deals with three major U.S. wireless networks—Softcard’s owners—to place the Google Wallet on upcoming Android smart phones… “shows Google is far more serious than they have been for some time,” Holland says. “Their absence was not indicative of them leaving, but regrouping and working out their next steps.”

MasterCard and Visa setting the standards

As for the payments industry overall, the advent of Samsung Pay, and its ilk, is a positive for merchant acquirers, Rick Oglesby, senior researcher at Centennial, Colo.-based Double Diamond Payments Research, tells Digital Transactions News. “These wallets are all converging around Visa, MasterCard standards,” Oglesby says. “There are not new transaction methods that have to happen at the point of sale. Now we know the payment transactions will run through legacy networks.”

Did anybody mention CurrentC?

While Samsung Pay can be used at most POS terminals, not all merchants may want that. When Apple Pay debuted, retailers CVS and Rite-Aid turned off the NFC component in their POS terminals because they intend to offer a rival mobile wallet called CurrentC. Developed by the Merchant Customer Exchange (MCX)—a group of retailers hoping to leverage lower payment processing costs and consumer spending data—CurrentC is still in testing.

Merchants possibly blocking transactions?

Merchants wanting to thwart Samsung Pay won’t be able to turn off the magnetic-stripe readers in their devices, Oglesby says, but they might be able to identify tapped transactions and block them. “It will be interesting to see what the MCX merchants decide,” he says.

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