Play to Pay: Handicapping the Race to Win in Mobile Payments

Google, Samsung, Apple Chase Category, but Who Will Scale?

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Buying stuff with phones, long relegated to a Silicon Valley pipe dream, may be ready to go mainstream. When summer comes, the three largest players in mobile -- Apple, Google and Samsung -- will each have competing touchless payment services available on the market. Each service aligns with its company's evolution and goals. And each will first have to prove its worth to banks, retailers and, most importantly, shoppers.

Depending on how the chips fall, each mobile-payment option could have radically different implications for marketers hoping to connect an ad or offer an actual purchase.

On March 2 at Mobile World Congress in Barcelona, Sundar Pichai, a senior VP at Google, briefly detailed the search giant's latest move: Android Pay, a software layer that lets developers tool around with payment applications on Google-powered handsets. His talk came just weeks after Google inked a deal with three of the top national carriers for distribution of Google Wallet, its four-year-old payments product.

Not wanting to miss out, Google's biggest hardware partner, Samsung, unveiled its own entrance into payments at the same event a day before Mr. Pichai took the stage. Its eponymously named payment service will land this summer on its latest flagship smartphones. Samsung's goal is to strengthen ties with consumers so they don't continue to abandon its phones.

Like Apple, Samsung enables purchases through an NFC (near field communication) tap-and-pay capability. Unlike Apple, Samsung Pay also accepts non-NFC terminals, imitating credit card magnetic strips -- through a function built into its phones, yet unspecified by the company -- courtesy of its acquisition of LoopPay, a payments hardware company.

That dual option gives Samsung a wider reach; according to Samsung, its service will work with 90% of retail terminals, compared with less than 10% for Apple. That advantage could quickly shrink, however. Card companies have begun issuing plastic with embedded technology called the EMV standard. By October, U.S. retailers must accept the new cards or bear the cost of any fraud. The regulation took effect in January across Europe, where merchants who don't support the new cards are liable for any counterfeit transactions. That is pushing businesses to adopt NFC terminals, shaving off the edge Samsung has in locking consumers into its payments system and its phones. "It's really just Samsung trying to play catch-up," said John Haro, chief technology officer with Vibes, a mobile payments and marketing firm.

It has a lot of catching up to do, if you buy Apple's hype. Two weeks ago, CEO Tim Cook said Apple Pay is supported by 2,500 banks and 700,000 retailers. Earlier, Mr. Cook claimed two out of every three touchless purchases made in the U.S., as of December, routed through Apple Pay.

"Apple had a very unique set of controls," Melanie Gluck, VP-mobile and e-commerce specialist at MasterCard, said at a recent banking conference. Google and Samsung, she added, "won't have the same interests, and they won't have the influence."

One marker of influence is the deals Apple has reportedly cut with banks and issuers: the iPhone maker takes a small slice (0.15%) of each Apple Pay transaction. Financial details on Android Pay and Samsung Pay are still being sorted, according to several executives, but industry observers are skeptical they can make the same demands as Apple. "I doubt it will charge the banks, nor is it in a position to do so," Cherian Abraham, a payments analyst at Experian Global Consulting, wrote in an email about Samsung.

Without taking a transaction cut, Google and Samsung might look to other revenue paths from payments. And that means they could play nicer with banks and marketers, unlike Apple, which has tucked its data away permanently.

Part of Android Pay's strategy is to encourage merchants to develop their own payments app, letting them push ads, mobile commerce and loyalty offers using Google's pipelines, according to an executive familiar with the company.

And banks may even build apps on top of Google's software, said Mr. Abraham. "This is different to the Apple Pay approach, where the bank brand is wrapped within Passbook," he wrote in an email. "Here, the bank brand is pervasive and isn't encumbered by a third party's brand."

One looming question for the emerging cottage industry is what happens once the mobile purchase is complete. Apple has repeatedly and adamantly given one answer: nothing. Asked at a recent investor conference how Apple uses purchasing data, Mr. Cook said: "With Apple Pay, we don't; we never give the merchant your credit card number. We don't even have it."

Google has used the same line. But experts in the space are skeptical, given that Google is Google, a company fueled by data and ads. "They do have that transaction data," said Mr. Haro. "You could imagine what they could do with it."

Still, all three mobile behemoths have work to do to convince the financial industry they are worth the effort. "It's not clear that any of those -- Apple Pay, [Android] Pay or Samsung Pay -- is going to be a scalable model that banks are happy with and that consumers can get the best deal from," said Steve Mott, CEO of BetterBuyDesign, a payment consulting firm. "I don't think we want to nail down what we think the future of mobile payments is at this point."

Contributing: Ashley Rodriguez

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