SAN FRANCISCO -- When Samsung invited a group of tech reporters last month to a media event to check out its new phones -- the Galaxy Note5, Galaxy S6, S6 Edge, and S6 Edge+ -- it also previewed its new Samsung Pay service, which it officially launched Sept. 28 in the U.S.
Samsung Pay combines several important factors: biometric authentication through fingerprint ID; near-field communication (NFC); emulation of magnetic-stripe cards, and end-to-end transaction encryption. The new rival to Apple Pay and Android Pay launched last month in South Korea, where it transacted more than $30 million in sales volume in its first month.
When a spokesman made the U.S. announcement about the new system back on Aug. 3, the aforementioned information didn't exist. So there was pretty much of a "So what?" reaction. After all, what could Samsung demonstrate that could really move the industry into new territory?
It didn't take long for skepticism to turn into valid interest. Once the spokesman started demonstrating Samsung Pay, it became crystal clear that this system was a no-brainer, because it's all about the device and not the transaction hardware in a store.
Works With All POS Systems
This is a payment system that doesn't care what type of NFC-enabled slide-card point-of-service terminal a merchant has; it just works with them all.
At the Sept. 28 launch, users will have to line up a few things first: They will need one of the new Samsung phones with the app noted above. They also will need a Visa, MasterCard, or American Express card issued from Bank of America, Citi, American Express, or US Bank. Wells Fargo, Chase and other banks are in the process but not ready to roll yet.
Finally, Samsung Pay works on AT&T, Sprint, T-Mobile and U.S. Cellular networks. A Verizon deal, Samsung said, is in the talking stage.
If you have one of the above mentioned cards, you will be able to pay at many locations that aren't designed to accept mobile payments of any kind.
Magstripe terminals will be fading away, albeit slowly, with the advent of the new chip cards and systems like Samsung's and Apple's. But Verifone, the world's largest provider of secure electronic POS solutions -- mostly sliding magnetic-card terminals -- welcomes Samsung Pay, because its clients don't have to change out their hardware anytime soon. Changing out smartphones is a much easier and more common occurrence.
Using a Note5 or Edge6 phone, all a user has to do to conduct a transaction is the following: swipe up on the phone face from the home button to open the Samsung Pay app; authorize the payment by scanning your fingerprint; and then simply tap or hover the phone over the POS station, no matter which one the merchant uses. The transaction takes place instantly between your bank and the merchant account, and you're done.
Apple Pay only works with Apple POS stations. Not every merchant necessarily wants to add the expense of one of those plus whatever Verifone or other mag-stripe machine they may already have.
Like Apple Pay, Samsung uses several layers of security, including biometric fingerprint authentication and encryption for privacy.
Addressing Multiple Markets All at Once
"Samsung Pay's decision to enable transactions with magnetic stripe readers is reflective of its strategy to address multiple markets at vastly different stages of maturity," Thales e-Security President Cindy Provin told eWEEK. "This will allow its adoption in markets (such as China) where mag-stripe is still in widespread use, and NFC terminals are not as widely available.
"By contrast, Apple has initially gone for the 'big fish' with launch in the U.S. and U.K. Samsung's approach for Samsung Pay is to make it available to more consumers in the short term utilizing the mag-stripe, but of course this will depend–as any mobile payment solution does–on owning the latest phone handsets.
"That said, the priority for mobile phone manufacturers and operating system vendors is to drive adoption of new phones – there's no real impetus to try and make everything work on the old equipment. The 'incumbents' will have to accept that the platform on which they wish to run their payment apps is a moving target, with new players driving innovation and the associated security architecture."
Samsung has set up partnerships with a number of financial companies, including Visa, American Express, and MasterCard, in addition to Citi, Bank of America, and U.S. Bank, with more on the way.