Samsung vs. Apple – No pay day.

A great payments service is not enough to stem the tide.

• While Apple continues to expand the reach of Apple Pay, Samsung is looking to save its bacon with a competing offering.
• This would bring Samsung into direct competition with Google Wallet and it is unclear how this relates to the non-compete agreement that the two companies have in the mobile ecosystem. (see here).
• Apple has added another 10 banks to the Apple Pay system meaning that 90% of US card transactions could be supported by Apple Pay.
• The piece that is still missing is the merchants where around 250,000 out of 3m retail outlets in US are NFC enabled.
• Even if Apple Pay is wildly successful, its reach will still be limited as it will only be available on iOS devices which are in the hands of around 13% of smartphones users across the world.
• This is the most lucrative 13%, but it still leaves plenty on the table for other offerings should they come up with offerings with similar ease of use.
• To this end, Samsung has been in discussion with a company called Loop Pay and there is the potential for these two to solve each other’s problems.
• Loop Pay consists of a piece of hardware that wirelessly transmits the data of the card to the sensor in the card terminal that reads the magnetic stripe.
• This means that any card can be read by any terminal and LoopPay claims that its technology already works at 10m merchants worldwide.
• LoopPay also includes an app. to manage all of the stored cards and to ensure that the appropriate security is observed when making a transaction.
• There are two disadvantages:
  • First: The user still has to sign or enter a PIN to complete the transaction making using LoopPay no less onerous than using the original card.
  • Second: It requires the user to have a case on his device that turns it into a brick or to carry around an extra fob.
• This is why LoppPay sells itself on “leave your wallet” at home rather than a much easier way to pay.
• LoopPay expects to enable tokenised transactions in 2015E which should solve the first problem.
• If Samsung integrates the LoopPay hardware into its mobile phones, this would solve the second problem.
• RFM thinks that the LoopPay transmitter is small enough to be integrated without any impact on the size or weight of the device.
• Hence, it is not inconceivable that Samsung and LoopPay together could come up with a solution almost as good as Apple Pay but how would this help Samsung?
• LoopPay prides itself on supporting any card and a very large range of smartphones meaning that this is not going to be a service that is exclusive to Samsung handsets.
• If it becomes successful, all the others will begin embedding the hardware as well meaning that any differentiation that Samsung would have created will be gone.
• To keep it exclusive, Samsung will have to buy the company which is unlikely to come cheap given the hype that has been created by Apple Pay.
• Consequently, I do not believe that this will save Samsung and that far more needs to be done if the Galaxy S6 and Note 5 are not to be yet more flops.
• I still fear that Samsung’s handset business will test negative territory in 2015E and still see downside to KRW1,000,000 on the share price.
• Microsoft, Google and Apple are far safer places to be.