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A mobile payment battle is blazing

Matt Hamblen | March 2, 2015
All eyes are on Samsung Pay and its embedded LoopPay inside the Galaxy S6 smartphone.

Google Wallet, which first emerged in 2011, was slow to catch on, but Google on Feb. 23 announced a deal to buy technology and capabilities from SoftCard, another NFC-based mobile payment system. The purchase means that Google Wallet will be pre-installed on new Android phones at Verizon, AT&T and T-Mobile later this year.

MasterCard said it agreed to support Samsung Pay with the LoopPay magnetic payment option only after setting up the tokenization security technology to support it. Tokens are crytographs, a kind of code, that are used instead of a customer's actual credit or debit card number to bolster security, and have been used with NFC payments in Apple Pay and other payment systems.

"Tokenization is how we got comfy with the magnetic secure transmission (MST) technology portion, and we wouldn't have supported [Samsung Pay] without [tokenization]," said Sherri Haymond, group head of MasterCard channel management.

When a MasterCard customer with a Galaxy S6 ready to make a purchase approaches a point-of-sale terminal equipped to handle either magnetic or NFC payments, the system is set up to give preference to NFC payments, Haymond said in an interview.

"We're viewing this MST as a bridge technology to enable consumers to take advantage of digital payments while NFC catches on," she said. "We do believe NFC is the wave of the future."

Mobile payment adoption is based on a complex set of technologies and business relationships. A major stumbling block in the U.S. has been the conversion of millions of payment terminals at U.S. retailers to more secure technology that supports smart cards and, usually, NFC. In addition to Apple Pay, Google Wallet and Samsung Pay, many experts are watching a consortium of large retailers called MCX that includes WalMart and Best Buy to see how MCX will affect mobile payment rollouts. MCX is not relying on NFC, at least initially, and may or may not support the LoopPay magnetic approach.

"How MCX members respond to Samsung Pay will be fascinating to watch," said Tim Sloane, an analyst at Mercator Advisory Group. The mobile payment space "is really getting interesting."

Unlike MCX, Samsung Pay will still rely on credit and debit cards and the banks that extend credit to consumers. Many merchants, including those in MCX, object to paying banks a fee of about 3% per credit-card transaction while also having to update their point-of-sale terminals to support smart cards. Merchants have an Oct. 1 deadline to upgrade their terminals to accept smart cards to avoid financial liability in the event of credit card fraud with older magnetic stripe technologies. Many of the updated terminals, estimated at about 80%, also support NFC payments with smartphones.


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