Digital wallet race heats up between Apple, Google and Samsung

By Steve Brachmann
December 3, 2015

nfc-smartphone-payments-335In the next few years, it will become much more common to see people completing transactions at restaurants, retailers and elsewhere with a smartphone or other mobile electronic device. The arena of digital wallets, which generally relates to the use of an electronic device to facilitate an electronic commerce transaction, has become more crowded over the course of the past year as major tech developers like Google and Apple have joined the fray. Samsung has also been busy developing its own digital wallet innovations, setting up a pretty big battle among three top contenders in the mobile device sector.

The percentage of Internet users who used a digital wallet rose between 2014 and 2015, from 7 percent up to 12 percent, despite a dip in the number of users actually making payments with digital wallets. But the term “digital wallet” is broad. If you focus on “tap to pay” using a smartphone usage is up.

The model for implementing digital wallets has largely relied upon what is known as the four-corner payment model by incorporating the use of payment cards, such as debit cards. Market research firm Research and Markets has reported that nearly three-quarters of all mobile digital wallets are funded by payment cards. By the end of 2013, 22 percent of the world’s population owned a smartphone, so it’s not inconceivable to think of a time in the future where credit and debit cards will become obviated by near-field communications (NFC) payment systems on smartphones entirely, despite the major rollout of payment cards with EMV computer chips by financial institutions. Today, we’ll take a look at the top three contenders in the mobile payment world to see what we can expect from each in the coming months.

 

Apple Pay Adoption Slows, but Foreign Markets Show Opportunities

It’s been a little over a year since Apple Inc. (NASDAQ:AAPL) launched its Apple Pay digital wallet service and the returns seem to be moderate. It’s been reported recently that 14 percent of American households have linked a payment card with Apple Pay, but that’s an increase of just a few percentage points from the beginning of 2015. In early November, there were about 700,000 locations across the United States that accepted Apple Pay. The digital wallet service, which scans a user’s fingerprint to authorize transactions, will also be available in payment card readers developed by Square Inc. (NYSE:SQ) which will be delivering Apple Pay-enabled card readers in limited quantities to small businesses.

The service has also made a transition to foreign markets in recent months. By the end of November, 250,000 retail locations in England were accepting Apple Pay for transaction payments. In that country, Apple Pay is even being used to pay for public transportation options operated by Transport for London, enabling users to pay for subway fare with their digital wallets. Banks in the UK were also warning consumers against Apple Pay users from storing their partner’s fingerprints for authorizing payments. A partnership with financial services corporation American Express Company (NYSE:AXP) is helping Apple Pay make moves into the Chinese and Canadian markets as well.

Hundreds of American banking institutions have already made their payment cards compatible with Apple Pay, which can be used on iPhones and iPads alike. There have been reports of a peer-to-peer payment platform for Apple Pay which would allow users to send money directly to the checking account of another user for personal, non-retail transactions. Some retailers, including Walgreens, are letting consumers upload their loyalty program cards to Apple Pay so that they can earn program rewards at checkout without having to scan the loyalty card.

 

Android Pay Tries to Steal Slice of Apple’s Pie

The world hasn’t gotten as much time to take a look at the Android Pay service operated at Alphabet Inc. (NASDAQ:GOOG), which has only been around for a couple of months since it was released on September 10th. The Android Pay digital wallet offers the same contactless payment transaction services which are available through Apple Pay, but for Android devices. It is the second Google attempt at providing a digital wallet after Google Wallet, which will transition into a peer-to-peer payment platform.

Android Pay does not require the fingerprint authorization technique, but it is available in compatible devices. Following the digital wallet’s initial rollout, a lack of partnering financial institutions and issues in scanning payment cards were cited as weaknesses but an update to fix some bugs, including problems in uploading loyalty program and gift cards, was out by early November. Limited release card readers sold by Square will also be compatible with Android Pay, further increasing mobile pay options at small businesses.

Android boasts that its digital wallet works at more than one million locations across the U.S., including dozens of large companies like McDonald’s, Macy’s, Walgreens, Disney and more. Android Pay trails behind Apple Pay so far in terms of users but was making a push during the 2015 holiday season to appeal to the philanthropic side of consumers, announcing that it would donate $1 per Android Pay purchase up to $1 million for projects in special education.

 

MST Technology Will Help Samsung Pay in Digital Wallet Sector

Samsung Electronics Co. (KRX:005930) has been making a big splash on the other side of the Pacific Ocean with its Samsung Pay digital wallet service. Unlike Apple Pay and Android Pay, which require the use of NFC sensors in specialized readers, Samsung Pay can communicate with conventional card readers to complete a transaction. Along with NFC, Samsung Pay also utilizes magnetic secure transmission (MST) to emit a magnetic signal which communicates a payment request to card payment terminals. Tokenization techniques are employed to keep private financial data secure.

Samsung Pay will reside along Android Pay on Samsung smartphones, which run Android operating software. Still, the company is making a big push to woo consumers with offers of $50 gift cards to Best Buy or free wireless device charging pads just for activating the Samsung digital wallet. Samsung is also bringing fingerprint sensor technology to its budget smartphones, so security may be an area where Samsung is looking to challenge Alphabet’s Google. Some, however, have noted a potential security issue as Samsung Pay only runs on unencrypted devices, removing a layer of security otherwise offered by Apple and Google.

The MST technology and its wide acceptance among a high percentage of existing card payment terminals have been spurring positive reviews of the digital wallet by such publications as PC Magazine. Samsung Pay didn’t see its U.S. launch until late September but is looking to enter the Chinese, Spanish and UK markets by the first quarter of 2015. Samsung isn’t expected to be the only South Korean electronics manufacturer in the mobile payment sector as LG Electronics Inc. (KRX:066570) has announced that it will launch a digital wallet service to compete with Samsung, Apple and Google.

The Author

Steve Brachmann

Steve Brachmann is a freelance journalist located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He writes about technology and innovation. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients and is available for research projects and freelance work.

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