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Samsung Pay’s promising launch faces hurdles with expansion

Samsung Pay is off to a good start, with users having processed more than $500 million in payments during the platform’s first six months of availability, but the next round could be tougher as it expands into new markets.

Samsung Pay was launched in the United States and South Korea last year, with approximately 5 million registered users on the platform already, according to the company. While Apple Pay and Android Pay bank on near-field communications technology to drive contactless payments from smartphones in stores, Samsung Pay is also able to leverage older magnetic stripe technology, which is available at more retail locations, but faces obsolescence as newer terminals take hold.

“Samsung Pay’s adoption figures indicate promising momentum, especially considering the service is limited to a small handful of devices,” said Jordan McKee, senior analyst of mobile payments at 451 Research. “However, as Samsung Pay enters new markets its value proposition may become diluted.

“In well-penetrated contactless markets, such as Australia, Samsung’s coveted magnetic stripe emulation technology will not be seen as a differentiatorl” he said. “This will be a challenging reality Samsung Pay must contest with as NFC increases in ubiquity across geographies.

“Magnetic stripe emulation technology is nearing the end of its shelf-life, meaning Samsung must do some soul searching to stand out from the likes of Android Pay and bank-branded initiatives.”

Contactless payments
While Samsung Pay gains adoption in its initial markets, it is also being introduced in new areas where it may face more of a struggle, in part because contactless payments are more established.

Samsung Pay will ramp up availability in 2016, landing in China in March followed by Australia, Brazil, Singapore, Spain and Britain later in the year.

Canada is also joining the launch roadmap for Samsung Pay.

In South Korea, Samsung Pay is adding online payments via partnerships with BC Card, Hana Card, KB Kookmin Card, Lotte Card, NH Nonghyup Card and Samsung Card, enabling consumers to fingerprint authentication to pay online.

The platform is working with four major payment networks: American Express, China UnionPay, MasterCard and Visa.

“This is part of a long term strategy for Samsung Pay and its competitors,” said Ned Elton, chief growth officer at Pex. “The dollar volume for payments is almost irresistible and the investment compared to the potential return is almost incalculable.

“So Samsung is very likely to continue to invest in maintaining the momentum,” he said. “The question isn’t really whether they can maintain the momentum as a single entity, it’s about the impact of all the entrants on the time it will take to drive full-scale adoption.”

Shifting tides
In the U.S., Samsung has been heavily advertising its availability across a wide variety of retailers thanks to its use of Magnetic Secure Transmission, which is able to authentic a payment from a phone even when retailers have older point-of-sale terminals that do not support NFC.

With mobile payments adoption moving slowly with consumers and retailers – many of who have not updated to newer POS terminals – Samsung Pay’s use of Magnetic Secure Transmission could give it an early boost. However, the consensus continues to grow that NFC will be the de facto mobile payments technology going forward.

The growing acceptance of NFC was evident in the news that PayPal, which had been an NFC hold out, will start supporting the technology.

“Samsung Pay and its competitors are building momentum towards a day when consumers will shift their behavior to mobile payments  – with each transactional experience being one more important step towards that day,” Mr. Elton said.

“That shift is inevitable but will take longer than many expect,” he said. “However, when it does happen, the impact on the payment eco-system will be much bigger then people expect.”