Samsung and Google Ignite Mobile Payment War

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Samsung and Google Ignite Mobile Payment War

By Greg Miller, Senior Technology Analyst

Whatever you want in today’s smartphone age – there’s an app for that!

You can find thousands of apps online that range from incredibly useful to utterly useless . . .  informative to entertaining . . . brilliant to bizarre.

However, there’s one part of our lives that phone manufacturers, wireless providers, software companies, and app developers haven’t managed to crack yet.

But three mobile phone contenders in the space think they nailed it. And the fight is officially on . . .

Kiss Goodbye to Cards

Imagine if every monetary transaction you made was done in an archaic, low-security way.

Well, each time you use your credit and debit card, that’s exactly what’s happening!

But what if someone asked you to dump the plastic and use your mobile phone to make transactions instead?

That’s the premise behind mobile payments.

Just flash your smartphone in stores, restaurants, gas stations, or even the payment window at the courthouse, and the vendor automatically deducts the payment amount from the appropriate account.

Sounds simple, right? There’s a problem, though.

So far, neither consumers nor retailers have fully embraced the technology. As with many new methods, mobile payments have taken time to gain momentum. It’s either too new, not widely available enough to be useful, or consumers don’t trust the wireless payment technology – despite proof that their credit cards aren’t secure, either.

There hasn’t been a breakthrough that will fully catapult mobile payments into mainstream society.

Until now.

Major announcements from Samsung (SSNLF) and Google (GOOGL) over the past few days indicate that the opening skirmishes are over. Let the real battle begin!

Samsung Enters the Fray

By now, you’re probably familiar with Apple’s (AAPL) new mobile payment system, Apple Pay.

Launched on October 20, 2014, it uses near-field communication (NFC) technology in payment terminals and customers’ iPhones to facilitate payments, rather than traditional cash or cards. A customer’s payment information is stored in Apple’s Passbook app, and the transaction is processed digitally through the phone.

Google Wallet’s similar system has been on the market since September 2011.

And now Samsung is entering the fray.

At the Mobile World Congress (MWC) in Barcelona last weekend, Samsung announced its new mobile payment system, Samsung Pay. Industry watchers had anticipated the move for some time – and the acquisition of LoopPay last month sealed Samsung’s intentions in the mobile payment field.

Indeed, the LoopPay technology gives Samsung an important edge in the mobile payment war. Using LoopPay means Samsung Pay can work with retailers’ existing infrastructure.

This is a significant difference from most mobile payment systems, which work with NFC.

You see, NFC is a short-distance wireless protocol that requires a phone to be very close to the payment terminal. This is great for security, as it means that while the payment information travels wirelessly, identity thieves can’t easily intercept the information.

However, an NFC system requires retailers to install their own NFC infrastructure – an unattractive proposition for retailers already suffering from low margins, just to chase a tiny market.

Alternatively, the Samsung/LoopPay system creates a magnetic field, which mimics the magnetic stripe on traditional bank cards. So when paying, a customer holds up his Galaxy S6 to an existing credit card terminal to make the payment – no new hardware needed.

And then there’s Google…

Google Ups the Ante

Not to be upstaged, Google also used the MWC to make an announcement of its own. And while it was much less formal and detailed than Samsung’s, it could have a more profound long-term effect.

It’s called Android Pay – a new wireless payment system separate from Google Wallet.

It’s really a “shell” of a payment system, with a publicly available application programming interface (API). Basically, Google is inviting anyone interested in developing their own payment systems that will operate in the Android universe. It will initially work over NFC, just like other current payment systems. But it’s designed to work with fingerprint readers (already a feature of Apple Pay), voice recognition, and any other security measures that developers design in the future.

This freedom allows retailers and other payment systems to plug Android Pay right into their own apps. So, for example, Home Depot (HD) could develop its own payment system that allows you to pay using a debit card, credit card, or the company’s own store card directly within its own app.

If you use Google Wallet, don’t worry. It will continue . . . and eventually migrate to the Android Pay structure, becoming one of many ways to use system. Google even said that in the future, Android Pay may work with Samsung Pay.

So what does this mean for the mobile payment industry in general?

Early Winner Determines the Outcome?

With three of the world’s biggest and most successful tech companies fighting to dominate a relatively new industry, it promises to be a fierce and intriguing battle.

With its announcement this week, Samsung instantly moves from a non-factor to the early leader in the contest.

But how can this be, given that Google Wallet and Apple Pay are already on the market? Simple . . .

Because as soon as the Galaxy S6 ships, customers can use the system on retailers’ existing equipment. Stores won’t need to buy new, untested, and potentially underutilized hardware. And if the S6 enjoys similar sales numbers to its Samsung predecessors, that’s a lot of consumers waving their phones around . . .  thus compelling retailers to sign up.

That being said, just as the Revolutionary War wasn’t won at Lexington and Concord, Samsung’s lead today doesn’t necessarily translate into long-term success. Indeed, if Samsung succeeds beyond its wildest dreams, the most likely outcome will be to convince retailers to install NFC and other biometric payment equipment that works with other mobile payment systems!

As for Google, Android Pay will persuade retailers and others to design their own payment systems. In fact, Google envisions payment infrastructure well outside the mainstream credit and debit card methods in places like India and Africa.

And, of course, everyone will be watching Apple Pay. The company has many major banks, credit card companies, and retailers on board – and the number is rising, as retailers and consumers alike gravitate towards a tried-and-tested firm.

But whoever wins in the long run – and there could be multiple winners – it seems clear that this week’s announcements will create the necessary critical mass of both users and vendors to finally move mobile payments into the mainstream.

To living and investing in the future,

Greg Miller

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By Greg Miller