“Wait!” College student A says as she scrambles to find a credit card to pay with because she has so many cards in her wallet. “Sometimes I need a card that I do not use often, so I tried to use some mobile applications that help me collect all my cards in one place. However, although I was able to use the applications instead of having to annoyingly search for the cards from my wallet, it was uncomfortable for me as I also had to pick a certain card or application out of the lot.”
Samsung, a Korean multinational giant conglomerate, claims that such daily inconvenience may soon disappear thanks to Samsung Pay, a mobile payment system which was launched three months ago by Samsung Electronics. “Samsung continues to work towards converting plastic cards into digital ones. We will enable people to use a digital one, Samsung Pay, instead of a wallet,” said Lee In-jong, the Vice- President of Samsung Electronics at the Mobile World Congress 2015. In reality, Samsung Pay has gained much popularity in Korea. The number of users has already reached the two million mark, and the grand total of payments totaled 100 billion won two months after it was released. However, there is some doubt whether the company will see continued success in the long run.
Development of Mobile Payment Services
Attempts to create a mobile payment service had already been under way before the development of Samsung Pay. Numerous mobile-service companies created mobile wallets for membership cards and discount coupons previously. Then debit and credit cards were also digitalized, making direct payment possible through smartphones. Credit card companies provided customers with what they call “app card” services, which provide a barcode that can be scanned for payment. Web-based mobile payment services like Kakao Pay or Naver Pay also appeared, making online payment much more convenient. However, all these services had limitations when using various kinds of cards, and customers had difficulties using them in offline stores.
In 2011, however, Google Wallet, a mobile payment system developed by Google, provided users with a service that works with tap-to-pay Near Field Communication(NFC) readers. NFC is a communication technology that enables people to exchange wireless data over short distances within ten centimeters. The short distance makes transactions safer, so the NFC technology is widely used in mobile payment systems including Apple Pay, Apple’s mobile payment and digital wallet service.
Samsung Pay is also a hardware based mobile payment service using NFC, but it is different; Samsung Pay works not only with NFC readers but also with magnetic stripe card readers by using Magnetic Secure Transmission(MST) technology. The MST technology emulates the process of swiping a traditional debit or credit card on a payment terminal. MST allows Samsung Pay users to make purchases by simply waving the smartphones fitted with the mobile payment solution over conventional payment terminals.
Also, Samsung’s fingerprint recognition technology and tokenization appeases its concerns in terms of payment security. Users have to certify their identity before making purchases through fingerprint scanning. Furthermore, credit card information is stored in a secure digital token and whenever payments are made, virtual transaction numbers are used. If the digital token information is disclosed, people’s personal security information is not likely to be stolen through the service, tokenization.
Samsung Pay Only Acts as a Wallet
Before the appearance of Samsung Pay, other mobile payment services like Apple Pay used NFC technology. A NFC terminal reading credit information on a NFC chip on mobile phones was needed for other mobile payment services like Apple Pay, but the NFC reader has not yet been widespread. On the other hand, as MST works on a magnetic stripe card reader which is common in Korea and North America, the users of Samsung Pay can use it in most stores. According to Kim Bum-soo, a Research Associate of Hyundai Research Institute, Apple Pay cannot be used yet, but Samsung Pay can be used in most stores that allow payment with credit cards in Korea. Also, while Apple Pay can be used only in 10 to 15 percent of stores, Samsung Pay can be used at 85 to 90 percent of stores in the United States.
MST is the distinguishable characteristic of Samsung Pay. “Samsung Pay has overcome the limitation of existing mobile payment services that do not work anywhere. The rate of reuse for Samsung Pay reaches near 80 percent, while the rate for Apple Pay is just 23 percent. The statistics indicate that Samsung Pay could replace the physical wallet for the first time,” said Kim.
The major reason for the popularity of Samsung Pay is that, stores do not need to install another payment terminal because it can be used on traditional credit card machines. Chang Suk-gwon, the Dean of HYU School of Business, said, “Samsung Pay does not generate any switching costs. It takes a great deal of time for new technologies to settle because people are usually afraid of something new. However, when using Samsung Pay, vendors can accept payment without special readers, and the users can also pay without having to learn to use complicated applications or devices. This allows people to accept the technology in a faster and easier way.”
The Limitation of Samsung Pay
Samsung Pay and MST may have received positive responses, but some experts expect that mobile payment services using MST technology will not continue in the future. The magnetic card is vulnerable to security breaches, which is why the Credit Finance Association and financial authorities in Korea predict that the use of magnetic cards will decline in Korea by 2018. Kim Dong-kyue, a Full Professor in the Department of Electronics Engineering and a Consultant of Samsung Electronics, said, “Samsung Pay faces limits in developing its business and pushing forward as a new trend of virtual payment. As magnetic cards and their readers disappear, Samsung Pay will lose its industrial competitiveness.”
For the Future Without a Wallet
According to Kim Bum-soo, the scale of global mobile payments is expected to grow from 431 billion dollars in 2013 to 721 billion in 2017. “The rise of Samsung Pay shows that Samsung Electronics has made inroads into the field of mobile payment services. It will compete with other companies like Google or Apple, allowing consumers to meet improved service more quickly. This could ultimately lead to the disappearance of the actual wallet,” said Kim Dong-kyue.