How Samsung Pay plans to compete in mobile payments

Samsung Pay strategy

It’s rare for a company with $268 billion in revenue to be viewed as an underdog.

Less than a year ago, Samsung purchased startup LoopPay, launching itself into the mobile payments market. Now pitted against industry giants Google and Apple, Samsung is harnessing its expertise in technologically advanced hardware to gain market share.

Betting on superior hardware to capture mobile wallets

Samsung has been creating a slew of advanced electronics for the past 70 years, producing superconductors, mobile phones, and other electronics since its inception. For its mobile wallet, Samsung developed new hardware called Magnetic Secure Transmission (MST) and is hoping the new technology will give it a competitive edge over other digital wallets.

Most mobile payments are processed through a QR reading scanner or brushing a device across a NFC reader, forcing retailers to buy new hardware to accommodate mobile payments. With MST, most swiping credit card terminals are tricked into thinking there’s a credit card present, allowing Samsung Pay to work without the need for retailers to upgrade their systems.

Dan Tuckman, Project Manager for Samsung Pay, feels that Samsung’s hardware is the difference maker in the battle for marketshare. “The key difference is that Samsung’s own proprietary MST technology was designed to be compatible with the majority of existing and new payment terminals so it currently works at more places than any other mobile payment service,” said Tuckman through email correspondence.

By investing time and resources in hardware, Samsung hopes to see reap rewards over time. Tuckman explained, “We believe Samsung Pay, including the MST technology, is the start of what we hope will provide more strategic business options for Samsung down the road that will benefit as many consumers as possible.”

According to Samsung, their technology works with 90% of the top 250 retailers in the world, allowing Samsung to focus on perfecting its digital wallet instead of convincing retailers to upgrade their hardware.

Looking at the results

Data to evaluate Samsung Pay’s success is limited – the mobile wallet was launched in South Korea and the US in August and September of 2015, respectively. Results are promising, but not out of this world; in February of 2016, Samsung reported 5 million registered users and over $500M dollars processed. Samsung recently launched in Spain, Singapore, and Australia, and is looking to open in Brazil, Canada, and the U.K. by the end of ’16.

Other signs point to future success for Samsun Pay. The first step to getting users to use Samsung’s mobile wallet is getting a Samsung phone in their hands. Over the past year, Samsung has led the smartphone industry in sales, accounting for 22.5% of total smartphone sales. If Samsung can maintain or grow a high market share of smartphone sales and introduce customers to its digital wallet, the company has a chance at becoming a mobile payments leader.

Three faces of competition

Samsung Pay seems to have a solid game plan, but still has an uphill climb to reach the top of the mobile payments mountain.

There’s no doubt that Samsung has unique hardware, but tech advantages are usually short lived. Samsung’s MST technology allows users to purchase via an install base of credit card machines. But with new chip and pin units rolling out across the U.S. and already in Europe, that advantage will soon close.

In addition to competing with other digital wallets, Samsung Pay has to contend with retailers, too. Many top retailers are developing their own mobile payment apps, hoping to retain customers through exclusive benefits, rewards, and other personalized experiences. As retailers develop better mobile payment apps, digital wallets like Samsung Pay could have a tougher time gaining market share.

The two above problems pale in comparison to the biggest problem facing Samsung Pay: the credit card itself. Although a credit card isn’t a digital wallet, you could argue it’s the largest mobile payment device. According to the Nilson Report, U.S. credit card transaction volume was $4.7 trillion in 2015, dwarfing the $620 billion global mobile payments market. Until customers become more accustomed to taking out their phones instead of their wallets, mobile payments will continue to be the little brother to credit cards.

Early trends make the difference

Samsung Pay is positioned well, but it’s still unclear if and how fast mobile payments become the go-to form of payment. Regardless, the battle for digital wallet superiority may be determined soon, during the infancy of mobile payments. As the market grows, the dominant digital wallet may see itself growing exponentially. By developing customer loyalty, continuing market share dominance, and providing vendors with easy solutions to accept its mobile wallet, Samsung Pay has its eyes on the mobile payments prize.

Photo credit: hellosputnik via / CC BY