Thursday, December 31, 2015

Why Samsung Pay Will Kick Apple Pay's Ass

It's that time of year when people put together lists of grand predictions for the coming 12 months (yawn), but when I started thinking of what my list of predictions would look like, I came up with only one prediction that I'm comfortable making, which is: 2016 will be the year Samsung Pay kicks Apple Pay's ass.

I know, it's not exactly a set-the-world-on-fire prediction, but it's the best I could come up with.

And I stand by it, because I've been working in the payments industry for a while now, and I've seen how the sausage is made, and yeah, it's crazy to think anything Samsung does could out-Apple Apple. But I'm here to tell you, Apple Pay is going to take it on the chin. All because of stone-simple copper wire technology.

See that photo? See the weird copper-loop gizmo? That's what's inside a Samsung phone. That's the piece that kicks Apple's ass. Starting any minute now, and continuing throughout 2016. And beyond.

If you're not a geek, stay with me, because I'm going to de-geekify all the Apple Pay baloney for you in about two seconds.

The basis of Apple Pay is something called NFC, or near-field technology, which is kind of like walkie-talkie tech for letting your iPhone talk to credit-card machines (without making physical contact), okay, but the catch is, the credit-card machine (in order to participate) has to be one of the newer-fangled, next-generation machines built to do the NFC tango. Which most machines aren't.

Obviously it's awesome (in theory) to be able to walk up to a check-out counter and wave your phone around and have a transaction go through, without your having to fish a plastic card out of your purse. That's an awesome concept. And it works great if you have Apple Pay on an iPhone and the merchant has a newer-fangled NFC machine. But most merchants don't have the NFC-style machinery, and honestly, can you blame them? Credit card gizmos are a hassle to upgrade. Just upgrading from magstripe to chip card capability is a pain, but going the extra mile for NFC? That's yet another level of upgrade hell. Most merchants aren't willing to do it just now.

Will Graylin
So in 2012, dig this, along come a couple of guys (Will Graylin and George Wallner) who decide to start a company called LoopPay, based on a really crazy idea: Put a copper-wire loop in a phone and use it to send out a disturbance in the Force (an old-school magnetic disturbance, not an NFC signal) specifically designed to spoof a card swipe, at a distance. You know that funky magnetic stripe on the back of your credit card? The one that's just a piece of magnetic tape embedded in the card, for cryin' out loud? The iron particles in that stripe are what the card machine responds to: You swipe the card through the slot, and the magnetized iron particles cause a ripple in the magnetic field between some sensors, and voila! Information is transferred. Well, imagine if you had a bunch of strong magnets taped to the back of a card and you could wave the card at the machine from a distance of a couple inches and achieve the same thing as a card swipe. The coil in a LoopPay device generates a magnetic field the old fashioned way, and does the same thing as tiny iron particles. It tricks a standard, non-NFC, old-school card swiper into thinking a credit card is nearby. It spoofs a swipe, at a distance. And yes, it's just that hacky. It's hilariously devious. It's low-tech. It's freakin' brilliant.

George Wallner
So yes, what you're thinking is right: If you've got a phone with LoopPay inside, you can trick a standard old-fashioned 1999-vintage card reader into thinking you're doing a mag-swipe, from a distance (i.e., "contactless"). No fancy NFC tech needed. No upgrades necessary. Even your merchant will be surprised.

Samsung saw the Graylin/Wallner technology in action and said "Holy shit. We have to have this." They bought LoopPay and its patents, early in 2015, for about $250 million. A major, major gaffe for Apple.

How's Apple Pay doing, by the way? Um, ah, well, you see, um . . . Read the headlines.
And so on. Apple Pay is dead in the water, even without Samsung Pay stirring up trouble.

Just hold your phone near the old-school magstripe swiper. Poof! Done.
Samsung, meanwhile, is just getting started. Samsung Pay is just now appearing in the U.S. Over the next month or so, Samsung will be rolling out some new phone models, and the initial production run on the Galaxy S7 is said to be 5 million units. Yes, there are more iPhones with Apple Pay on them than Samsung phones with Samsung Pay, but the point is: Who's using Apple Pay? Practically no one. Who can accept Samsung Pay? Practically every merchant on earth.

Who's going to win this? You decide.

Need I say it? This blog reflects my own opinions, not those of my employer.

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  1. Um, wrong. In Canada we've moved away from mag stripe and are going for NFC / chip. Up here its almost impossible to find a magstripe only pinpad. Also, take my card for example. If I try to swipe my card on a chip enabled pinpad, TD will decline the transaction and force me to use either the Tap/NFC option or the chip.
    Also, Translink, our transit provider, is looking at allowing NFC enabled phones to work with the NFC fare gates that have just been installed.
    So, can't really understand why Samsung would be embracing a soon to be dead technology. Maybe this technology has patents that Samsung feels it could use to attack Apple with.

    1. I was about to say the same thing.
      I think it is clear from how the article ends "you can trick a standard old-fashioned 1999-vintage card reader "

      Well, it is not 1999

  2. Maybe before someone (Samsung) invests $250M in something, they do a little homework? Maybe they know something we don't? Maybe they know magstripe isn't dead -- not in the U.S., at least, where many merchants either haven't installed EMV equipment, or have, but still let customers swipe. I use my chip card about 30 times a month, and over half the time, I swipe.

    It could be that there is more here than meets the eye. Don't be so quick to buy "EMV is taking over" propaganda. EMV *is* taking over, outside the U.S. Inside the U.S.? It's still a magstripe world.

  3. I'd have to agree with other commenters that I think it's a day late and a dollar short for Samsung. However one thing that is hindering all contactless payment is general consumer awareness and here's where Apple has the edge. It's easy to see the small Apple Pay logo on a terminal along side visa, MasterCard, American Express and discover, but Samsung pay has nothing. It only has the Samsung name. So how will the consumer distinguish the difference between the name they see on a pos display screen ( Samsung makes displays) or the swipe terminal itself (Samsung makes pos equipment too) ? They can't use the android logo either because that's a different. Payment mechanism. So it's imperative that Samsung pay has a distinctive logo that won't confuse the consumer and help adoption. However I don't think samsung is that smart about branding and branding matters to adoption.

    The other dark horse for Apple Pay is the API. You can use it in most mobile scenarios and not just at point of sale. You can embed it into websites etc. Samsung needs a developer ecosystem to do the same, but it doesn't really have one.

    On balance, I'd have to give Apple the edge over Samsung.

  4. I agree with you on most of this. The ultimate test is the market. By the end of the year it should be pretty clear whether Samsung has pulled off a miracle or not.

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