Mar 10, 2015 10:52 PM EDT
Samsung won't be charging anyone, including both card issuing banks and payment processors, for Samsung Pay when it rolls out its mobile payment system in Korea. And this may just be possibly setting the stage for a free U.S. version, as well, once it brings Samsung Pay to the U.S. this summer.
The move could give Samsung Pay a much better chance to get partners to sign up in a market that is already being dominated by Apple Pay. Apple Pay reportedly charges banks 15 basis points for credit transactions and a half-cent for debit transactions. The no-fee approach, however, would mean that Samsung must come up with another method of making profit from mobile payments. "Samsung Pay's profit model could include ads in the commercial market by issuing coupons or gift cards," Samsung Pay VP Lee In-jong suggested at a press event.
Choosing market share instead of profitability early on would also play to Samsung Pay's technical approach. While Apple Pay uses the iPhone 6 or Apple Watch's NFC chip to connect with contactless point-of-sale terminals that still only represent a fraction of all retail payment terminals in the U.S., Samsung Pay supports NFC for contactless payments, LoopPay to mimic traditional magnetic-stripe payment cards, and bar code based payment systems.
"The NFC payment service accounts for less than 10 percent of the mobile payment service market, but the weight of the MST-enabled service is more than 90 percent. So, I think that Samsung Pay that supports both NFC and MST will be distributed faster than Apple Pay," says Shin Jong-kyun, president of the IT & Mobile division at Samsung. His remarks were made at a press event following the launch of the Galaxy S6 at this year's MWC.
This combination of technology will cover virtually all of the retail point-of-sale systems, although Samsung would still have to convince users to begin making payments using their cell phones. Samsung must also convince issuing banks to get cards live on the system and to support virtualization for its transactions. However, they have already secured the support of both Visa and MasterCard.
If Samsung does forgo fees in the U.S. and it's all encompassing technology approach is a success, the largest Android smartphone maker could help define how much other Android players could charge for mobile payments and could even give Apple a run for their money.
For their part, Samsung seems prepared to take on Apple and places great faith in their new payment system. "Samsung Pay will reinvent how people pay for goods and services and transform how they use their smartphones," said JK Shin, CEO and Head of IT & Mobile Communications Division at Samsung Electronics. "The secure and simple payment process, coupled with our robust partner network, makes Samsung Pay a truly game-changing service that will bring value to consumers and our partners in the ecosystem."