Samsung Pay

Every major tech company wants a piece of the digital payments cake and it is not surprising to see a numerous versions of contactless payment services. Major players like Apple Pay, Android Pay, and Fitbit Pay are not doing anything other than offering discounts and rewards for using their service. With each of them being platform dependent, there isn’t a service which currently offers the widespread acceptance of Visa, MasterCard or other card networks.

How do you innovate in a payments space so crowded?

In a bid to differentiate itself, Samsung launched Samsung Pay which is able to emulate your credit or debit cards and expands the acceptance of mobile payments to any terminal which accepts cards. While the concept itself is not new, it is an important move into India.

The number of cards issued has risen exponentially over the last couple years, but the technology itself hasn’t improved much. Newer cards come with a chip which allows for more secure authentication, but other than that, the banks and card networks are forced to innovate on services rather than the product itself. Much of North America and Europe have been using contactless cards for some time, and although the technology is not so expensive, adoption of contactless cards in India is pretty dismal.

How do contactless cards work?

Contactless cards work by using the NFC (near field communication) protocol which is a subset of RFID (radio-frequency identification), which can also be found on some phones. It took Apple a while to enable the NFC reader and transmitter on its phones, but Samsung and other Android phones have allowed you to simply replace your contactless card with an Android smartphone which has NFC enabled. But none of the companies had a solution for India where the adoption of contactless cards was very low.

How does Magnetic Secure Transmission work?

Samsung Pay uses MST or Magnetic Secure Transmission, to emulate a card. This works by emitting waves which are similar to the ones on the magnetic strip in a regular credit card. The technology of MST is also not very new. Some startups have tried and failed at making MST more accessible. Take the case of the Coin card. The company built a device which looks and feels like a regular card, albeit slightly thicker, and a small monochrome screen and a couple of buttons. This card goes into your wallet like your regular card, after capturing the data on all your other credit/debit cards and even gift cards. This makes it possible to carry just one card and switch between all the cards you need, when you need them.

Coin was uniquely positioned as a utility and instead ended up being too cumbersome to use. While it was popular in the United States for a while, it was restricted to NFC and could not emulate cards which had a regular EMV chip, which was gaining popularity in India at that time. The way Coin registered the cards was also unique. If you’ve ever seen a card reader by Square, you’d know that it attaches through the headphone jack on a phone for power and transmits the card details through Bluetooth to the phone. As it turns out, Coin shut down all operations and got acquired by Fitbit, which later on went ahead and released Fitbit Pay.

Samsung Pay implements it slightly differently. Since, as a security feature, you cannot duplicate the chip on your credit/debit card, Samsung had to find a way to get around this problem. Samsung decided to go with virtual cards, which can be issued by banks supporting the technology. This basically creates a card with a different number for use virtually. Virtual cards are big hit in India. If you’ve ever used a service like Paytm Payments Bank, Airtel Payments Bank, ICICI pockets, or Zeta Super Card, you’ll know how convenient these cards are. You can generate card numbers on demand, change the PIN according to your whims, and even deactivate the card in case you gave it out at an insecure location. As of now, Samsung Pay has partnered with quite a few banks in India, including Axis Bank, Citi, HDFC, ICICI and Yes Bank. A few more banks including Standard Chartered, Kotak Mahindra and AMEX have been recently added along with wallet players including Mobikwik and Paytm. Samsung Pay now accepts UPI as well, making it a really good case of how a device can become a platform for payments.

Limitations and the future roadmap

Samsung Pay isn’t stopping there. Recent reports point to a possible integration of Samsung Pay with ATMs, allowing customers to tap their phone at an ATM for withdrawals. Samsung is also partnering with the card, wallet, and UPI networks to offer promotions and discounts in the form of cash back. While the PoS terminals in India are aggressively being upgraded to accept contactless cards and UPI/BharatQR codes, Samsung doesn’t need to rely on the technology in the POS machines and instead enjoys almost universal acceptance.

When you explore further, it might also be feasible to use Samsung Pay to secure your privacy. If you’re unsure about using your card at shady retail locations or giving out your card details to an online retailer, you can create a virtual card and immediately destroy it if you suspect foul play. Virtual cards have been around for quite a few years and people have been using them for the same purpose. Previously, the creation of the virtual card was a cumbersome process and often required a lengthy sign up process with your banking provider.

Samsung’s plan seems to be to integrate Samsung Pay into as many devices as possible. While they still haven’t decided to open up the tech to increase adoption, they are releasing phones at different price slabs which have MST integrated. Samsung also released Samsung Pay Mini which allows the use of UPI for bank transfers and integrates Paytm and MobiKwik for wallet transactions but not credit/debit cards due to hardware limitations.

The competition

With several new transit cards and semi-closed or closed loop cards coming up, it might be interesting to see how many of these Samsung decides to integrate into Samsung Pay. While a few other services have tried integrating rewards and transit cards into a smartphone, none have worked well in India.

With Apple Pay trying to enter the Indian market, it would be interesting to see how Apple gets around India’s lackluster adoption of contactless cards. Apple’s Wallet application is already available in India and it is only a matter of card issuers to support it. While you still will not be able to add credit/debit cards, it does have support for rewards and loyalty cards and even boarding passes and movie tickets.

Integrating payments into wearables is the obvious direction the tech industry is taking. It is pretty easy to integrate contactless solutions in consumer electronics such as TVs, refrigerators, smart watches, and even dedicated hardware wallets. Samsung, Apple, and Fitbit are ahead of the curve by releasing their payments solution for wearables, but it is indeed interesting to see how this competitive market will force the companies to innovate. Square is trying to redefine the in-store acceptance infrastructures, relying entirely on a tablet and a card reader. Such solutions allow for more retailers to jump on the digital payments bandwagon, often bypassing heavy fees and service charges associated with renting PoS devices.

How do you innovate in a payments space so crowded?

How do contactless cards work?

How does Magnetic Secure Transmission work?

Limitations and the future roadmap

The competition

Further reading