Apple may have lost its lead in contactless payments yesterday when Samsung introduced its universally accepted Samsung Pay at Mobile World Congress. This may be somewhat surprising considering just last September Apple convinced the mobile industry that it had revolutionized credit and debit card payments with Apple Pay.
The combination of Apple Pay's strong security, brand name, and broad support from top banks and merchants impressed Apple fanboys and critics alike. People who never would have trusted contactless smartphone payments were suddenly interested.
Samsung also has strong security, brand awareness, and the gravitas to win the support of top banks like Citi and top credit cards like Visa, MasterCard, and American Express. Unlike Apple, it doesn't need the cooperation of merchants because of the Magnetic Secure Transmission (MST) technology Samsung got when it acquired Looppay. MST generates a magnetic field that emulates the swipe of a credit card when the Galaxy S6 is positioned within close proximity of a magstripe card reader at an ordinary credit and debit card payment terminal.
The Galaxy S6 and Samsung Pay just knocked Apple Pay onto the mat for two reasons. Big retailers like Walmart, Best Buy, RiteAid, and CVS, which blocked Apple Pay, can't block Samsung Pay because MST interacts with the payment terminal like a magstripe credit or debit card swipe. They would need to refuse all magstripe credit and debit card payments to block Samsung Pay. Samsung does forgo its share of the credit card transaction fee to bypass a merchant's block, but it would be a small price to buy Samsung's customers the convenience of paying for purchases everywhere. Its universal acceptance would also highlight the limits of Apple Pay.
This is a big advantage. Samsung Pay works with any payment terminal that accepts either magstripe credit and debit cards or Near Field Communications (NFC) enabled terminals. Apple Pay can only be used at terminals supporting NFC, which account for less than 10% of the merchants in the United States, according to Samsung VP Justin Denison. Only with Samsung Pay can consumers leave their plastic credit cards at home.
In all other respects, except for Samsung Pays' universal acceptance, the two payment products are very similar. Just like Apple, Samsung doesn't store transaction information, and like Apple, Samsung Pay tokenizes the transactions so that the merchant never stores the consumer's credit card number. The Galaxy S6, like the iPhone 6, also has a fingerprint reader that authenticates the users' identity prior to making a payment.
Apple Pay and Samsung Pay can coexist. But Samsung could make things difficult for Apple if it were to license its payment, MST, and fingerprint technologies to the Android ecosystems. With Android's huge 80% market share, Samsung could dilute Apple Pay's glamour by giving Samsung Pay capabilities to every Android smartphone.