Samsung and Apple, who together sell approx. 40% of smartphones globally, are about to go head to head in the mobile payments market as Samsung continues to roll out its new payment service, Samsung Pay.
Software and Services 'Ecosystems'
Samsung has generally lagged behind Apple in terms of the development of a "system" of software and services supporting its products. It has been a relative spectator as Apple built an efficient system supporting its products, but it is now ready to take the fight to its rival in the mobile payments arena with the introduction of Samsung Pay.
Historically, Apple has been able to drive loyalty through its unique ecosystem and proprietary operating software, while Samsung, like many makers, runs its phones on Google's Android software, making it more difficult to differentiate its offering from that of its competitors. It is therefore very important for Samsung to be able to offer additional services like Samsung Pay so that it can edge out as many competitors as possible in a very crowded and competitive Android space. This is particularly so in the Chinese market.
Samsung will hope that customers trying to decide between their phones and those sold by competitors ultimately chose the Samsung because of Samsung Pay.
Mobile Payment Offerings Compared
Apple offers users the ability to 'tap' their iPhones on payment machines to pay for smaller value everyday items such as tickets, coffee and snacks. This has brought about a new revenue stream, much in the way that the iTunes service did some years before which allowed users to purchase and listen to music and videos.
Similarly Samsung Pay is a secure and easy-to-use mobile payment service which can be used to make purchases almost anywhere cards are accepted. To make a payment users simply swipe their smartphone, scan their fingerprint and pay.
Samsung Pay also offers services beyond payments, offering U.S. users gift card, membership and loyalty card support giving access to savings, rewards and other offers. Users in other global markets can, according to Samsung, "... soon expect to see additional value-added services that will enable them to make more than just payments in their respective regions."
Working With Banks
Currently the banks Apple works with pay a small charge for each transaction (reportedly 0.15% in the US). Samsung is planning to take a different route to that followed by Apple. It is not going to take fees from its financial partners, viewing Samsung Pay as a vehicle to drive sales of their devices instead.
Explaining the rationale behind this decision, Elle Kim, Global Vice President of Samsung Pay, stated that, "We're a hardware company, and at the end of the day I think what we're trying to do is get people who hold (one of) our phones and use it ... to just love it more."
Banks should be able to work with both Apple and Samsung since they are not exclusive technologies although Samsung's approach of not making the banks pay a fee could help it scale up quickly with banking partners. The lack of payment will make it more attractive to the banks and they could instinctively and subconsciously 'prefer' Samsung ahead of Apple when setting up the systems in new markets installing the Samsung system first. Clearly this would give Samsung an earlier entry into the market thereby giving it a competitive edge over Apple. However, banks will not want to miss out on taking a slice of the Apple payment pie (pardon the pun!) so a lot could depend on the anticipated success of each of the systems in the market in question as this will drive what revenues the banks will earn.
Commenting on the two systems and negotiations with banks, analyst Christophe Uzureau, Vice President of Digital Payment Strategies at Gartner, said, "Apple wants more control, and the negotiations are more complex. Samsung is more flexible, so from a bank's perspective there is an ability to have more flexible terms and conditions."
Market for Mobile Payment Services
The market for phone payments is still in its infancy. Samsung and Apple only being in direct competition in the US since September 2015, China for four months, and Australia and Singapore for a matters of weeks. Apple Pay is also available in Britain and Canada, and Samsung Pay in South Korea and Spain.
Apple Pay use totaled $10.9 billion last year, mostly in the US which is tiny when compared with China where an estimated $1 trillion worth of transactions were completed last year. In China payment is dominated by internet giants Alibaba and Tencent which both have ambitions to develop their business outside China but have yet to make significant inroads.
Samsung's Technological Advantage
Two technologies exist for taking payments. They are the older technology Magnetic Secure Transmission (MST), which mimics the magnetic strip on traditional payment cards and Near Field Communications (NFC) technology. Phones compatible with Samsung Pay use both MST and NFC whereas Apple Pay only works with sales terminals equipped with NFC technology.
Clearly this gives Samsung a competitive edge in countries where NFC terminals are far from ubiquitous such as the US. Mobile payments need to make the option to pay to be available in places where payment by plastic is also acceptable. That is the whole point of mobile payments and if they cannot make payments in the same way as plastic a wallet or purse cannot be replaced with a mobile.
In part both companies are investing in mobile payment to defend their premium product pricing as smartphone market growth slows and Chinese rivals bring down average selling prices.
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