Thursday, August 27, 2015
As acquirers and merchants race to replace mag stripe POS terminals with newer Europay/MasterCard/Visa-chip enabled terminals by the Oct. 1 fraud liability shift deadline, Samsung Pay's dual approach is expected to ease the transition for countless merchants, who could take years to achieve full compliance with card brand mandates. Magnetic Secure Technology (MST) developed by LoopPay Inc. will be preloaded into the new Samsung Galaxy S6 smartphone and Note5 tablet models. MST securely pulses mag stripe data to existing mag stripe and dual-equipped POS terminals.
"The merchants, for the most part, don't really have to do anything to their POS systems to accept Samsung Pay," said Will Graylin, Global Co-General Manager for Samsung Pay and Chief Executive Officer of LoopPay. "What we do is send a tokenized version of the mag stripe transaction that includes a one-time use cryptogram inside the discretionary field (track data), and as far as the merchant is concerned, they're just sending the track data back to their processor."
Graylin described Samsung Pay as leveraging the existing rails to put out "a faster, safer bullet train with contactless payments." Using Samsung Pay, duplicate transactions, NFC and mag stripe, cannot occur simultaneously. Graylin said that depending on where the user positions the phone, a POS system equipped with NFC, for example, would search for an NFC signal to complete the transaction; likewise for MST. Whichever signal from the mobile device is detected by the POS system first is designated in the transaction.
"If this works as they have purported it will, it could easily work without a hiccup at 90 percent or more of the terminals," said Richard Crone of Crone Consulting LLC. "In that case it gives them a huge leg up for adoption of their mobile payment platform."
Another key differentiator for Samsung Pay is the apparent lack of fees, at least initially. "We're not trying to take a piece of interchange," Graylin said. "That's not our model. Our business model is to become a useful tool for consumers, and then eventually a useful tool for merchants and financial institutions to better engage their customers."
Crone is not surprised that Samsung Pay, like Apple Pay, is primarily focused on mobile device sales, which makes sense from a manufacturer's perspective. "That's the initial game plan, to sell more phones," he said. "But the ultimate prize in mobile payments will be interacting with the customer before, during and after payment."
Crone also believes Samsung Pay delivers a better value proposition than Apple Pay. "Unlike Apple Pay, which extracted a pound of flesh from the issuers, requiring them to sign a contract to give Apple 15 basis points on every credit card transaction and half a cent on every debit transaction, Samsung Pay will not be extracting those same royalties and rents," he said. "Frankly, if you want to be on Apple, you have to pay to play."
Ahead of the launch, Samsung had already setup strategic partner alliances for Samsung Pay with the major U.S. card brands, banks and payments industry partners, including First Data Corp., Synchrony Financial and Total System Services Inc.
"The sleeping giant here is bank-branded wallets, and you'll start to see that at the end of the year," Crone said. "The big winner is Visa, MasterCard, American Express and Discover, because the account credentials will still be provisioned through their tokenization services. It's the first real major new product from Visa and MasterCard in 20 years and should be very well received by shareholders once it starts to run in earnest."
Some view Samsung Pay and other mobile entrants with a note of caution. Like mobile banking, mobile payment adoption will run its course. From a financial institution perspective, CU Wallet CEO Paul Fiore said, "When financial institutions realize that they have this trove of information about their customers, maybe turning over brand identity to a third-party company that might even disintermediate is not a good idea." He added that everyone wants to be top of wallet, especially in mobile. 
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