Welcome to the payments revolution: Apple Pay vs Samsung Pay

By Nicole Miskelly | 3 March 2015

We are currently in the midst of a payment revolution, with mobile payments tipped to take over cash payments within the next few years. Since Apple Pay launched in October last year, there has been a race to see who would be next to enter the mobile payments space and both Samsung and Google are taking steps to rival Apple in this sector.

According to Visa Europe, annual transaction volumes are increasing and statistics show that in 2014 volumes reached over £460m, which is a 263 per cent increase on the previous year. This week it was reported that South Korean electronics giant Samsung is the next big player to enter the mobile payments space with the announcement of their mobile payment solution Samsung Pay.

Since news broke last month that Samsung acquired mobile wallet solution, LoopPay, whose technology has the potential to work in 90 per cent of existing point-of-sale (POS) terminals and doesn’t require any investment in new infrastructure by merchants, Samsung Pay offers compatibility with older card terminals as well as the near-field communications (NFC) terminals that Apple Pay is compatible with.

LoopPay joined Samsung to strengthen Samsung’s efforts to provide users with a seamless and safe mobile wallet solution and Samsung’s collaboration with MasterCard to create Samsung Pay will enable those with a MasterCard and a new Samsung Galaxy S6 to make in-store transactions with their mobile phone.

“More competition can only be a good thing.  It breeds continued innovation in an already growing ecosystem.  Two electronics giants going head to head in a space of constant change will no doubt change the payments evolution into a worldwide revolution.  People already take sides.  Are you an Apple or Android handset user?  This will encourage retailers and banks to sit up and realise that it is no longer an option.  It’s time to embrace change,” said Michael O’Loughlin, Executive Consultant, CGI.

Some industry experts believe that tech giant Apple has driven the need for more adoption in the mobile payments sector and has encouraged competition from other players. “Apple gets it. The way to make things appealing is to make them simple, convenient and valuable for consumers. This is why couponing, loyalty and ticketing are set to be included in Apple Pay 2.0, bringing value added services (VAS) to the masses, driving further adoption and stimulating further innovation from other industry players,” said Sirpa Nordlund, Executive Director of Mobey Forum.

Many people believe that Apple already dominates the mobile payments space, however new entrants such as Samsung and Google are needed in the market to stir things up. “It is critical for Samsung and the overall market that other players enter the mobile payments space. Apple does not dominate the market, yet. The standards they use are actually in the public domain e.g. tokenisation from EMV - and these could and should be adopted by all players,” said Jerry Norton, Managing Director of Financial Services, CGI.

Sunil Sachdev, Managing Director, International Payments Group, Fiserv believes it was inevitable that large device manufacturers would go head-to-head in this space and that greater competition will result in greater innovation. “Given the ever growing role of mobile devices in our daily lives and the robust growth trends in electronification of payments globally, it was inevitable that large device manufacturers like Apple and now Samsung would incorporate mobile payment functionality in their devices. Going forward we expect Xiaomi and others to also embed similar mobile payments capability in their phones.  We believe the emergence of alternatives to Apple will help drive greater innovation and support greater access of financial services to the large unbanked and underbanked communities around the world.”

Unlike the NFC that Apple Pay uses to communicate with new credit card payment terminals, LoopPay uses something called Magnetic Secure Transmission (MST) which uses the magnetic strip reader already found on most credit card terminals. Norton believes that by utilising LoopPay’s technology and their market presence, Samsung could compete with Apple Pay.“If Samsung wish to play they need to adopt universal, open, standards which can be easily adopted by physical and online merchants. LoopPay has some interesting technology which helps to transition from the traditional POS world to the new. In Europe, given the inexorable rise of NFC then this “interim” technology may have a limited shelf life. Elsewhere this may not be true. LoopPay’s market presence may also help Samsung negate Apple’s emerging threat to their aspirations.”                          

​O’Loughlin believes that LoopPay might appeal to merchants because it can work in existing POS terminals. “The LoopPay option may be more appealing for retailers (who were initially sceptical of ApplePay’s offering) since it is claimed that no payment infrastructure is required.  It will be interesting to see how this develops across the different global markets and demographics.”

Although Apple was not the first mobile handset maker to develop a wireless payment product, their Apple Pay service available in the US overtook other NFC payment products that were already available. Google created their own Google Wallet in 2011, which failed to take off, but have since made a deal with three major US telecoms companies to pre-install their mobile wallet on smart phones.

Since Samsung acquired LoopPay many industry experts have said there will be both positives and negatives that result from a mobile payment system that uses MST and according to Deborah Baxley, Principal, Cards & Payments at Capgemini Financial Services, Loop Pay could suffer security issues. “The magnetic stripe emulation technique deployed by LoopPay could potentially suffer from the same security issues as traditional magstripe – namely replay, intercept, cloning – but there is the potential to protect the transactions using encryption or tokenization,” said Baxley.

How does the future look? O’Loughlin believes that mobile payment technology is evolving rapidly and the demand for services such as Apple Pay and Samsung Pay will increase in unbanked nations. “Non-bank payment systems are set to meet non-banked customer demand worldwide.  Millions of unbanked customers throughout the globe have mobile phones. With more mobile payment offerings in the market, this significantly large unbanked global population may be drawn to non-bank payment systems such as ApplePay and the Samsung’s recent acquisition of LoopPay.”

Sachdev believes we are living in exciting times and that the introduction of new players could encourage banks to develop new technologies. “I believe there is consensus in the industry that we are just at the beginning of our journey with regard to mobile payments.  It is an exciting time as Apple, Samsung and other ecosystem players weigh in with what their vision of mobile payments is and then watch to see how those solutions evolve and adapt across different geographies, demographic segments and a myriad of legacy and newer technology platforms. For financial institutions this is also a time of new possibilities, with mobile based functionalities offering great opportunities for developing new technologies.”

No matter what the future holds, now that Samsung has thrown Samsung Pay into the mix Apple has some serious competition, and by using almost identical underlying technology as Apple Pay, the biggest difference (which could prove to be a game changer) is Samsung's use of MST thanks to LoopPay.

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