Meanwhile, PayPal acquires mobile payments firm Paydiant.

Mobile payment competition intensified with two announcements in the past few days.  

Samsung Electronics Co. plans to launch its Apple Pay mobile payments challenger, Samsung Pay, in the third quarter in the United States and South Korea. And PayPal plans to buy mobile payments startup Paydiant Inc.

To launch Samsung Pay, the electronics manufacturer is working with MasterCard Inc. and Visa Inc. and is in discussions with companies including American Express Co., Bank of America Corp., Citigroup Inc., and JPMorgan Chase & Co., Bloomberg reports.

Samsung Pay will let Samsung smartphone users set up an account where they can store their payment and loyalty cards within the mobile wallet. At checkout, a shopper can open Samsung Pay on her smartphone, select the payment card and authenticate the purchase with a fingerprint sensor. She can then tap the device on the store’s point-of-sale terminal for the in-store payment. The fingerprint authentication is similar to the security technology Apple Inc. introduced last fall with Apple Pay on new iPhones.

Samsung Pay will offer two ways for smartphones to transmit account data to payment terminals. One is Near Field Communication, a short-range wireless technology that lets mobile phones communicate with payment terminals. The other is magnetic secure transmission, also a short-range wireless technology that allows smartphones to communicate with the magnetic stripe reader on a POS system. When a shopper puts her phones next to the POS system, it conveys the information that would be transmitted with a card swipe.

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Having both NFC and magnetic secure transmission in one device makes Samsung Pay compatible with about 90% of card readers, Bloomberg reports, as opposed to Apple Pay, which can only work at checkout counters where retailers have deployed terminals with NFC capabilities.

Samsung Pay builds on the technology Samsung acquired in its February purchase of LoopPay Inc., a company that develops technology that turns payment-card readers into wireless payment terminals. LoopPay used magnetic secure transmission technology, but until now consumers have had to purchase and use a dongle, a small piece of hardware that connects to a computer, for it to work in physical stores.

Going forward, Samsung will likely incorporate Samsung Pay into all its smartphone models, says Thad Peterson, senior analyst at consulting firm Aite Group LLC.  

“Samsung views contactless mobile payments as table stakes for new mobile offerings,” Peterson says.  

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Apple Pay, which launched in October, created widespread consumer awareness about mobile payments, Peterson says. In part, that’s because of its large market share; Apple has a 41.8% share of the total U.S. smartphone subscribers age 13 and up. But Samsung isn’t far behind at 29.7%, mobile measurement firm comScore Inc. reported as the three month average ending November 2014. 

Thanks to Apple’s influence, mobile wallets are increasingly important, says George Peabody, senior director at Glenbrook Partners LLC, a payments consulting firm.

“Everything is shifting to the mobile device,” Peabody says.  

Samsung is following the path Apple has already paved, says Rick Oglesby, senior analyst at Double Diamond, a payments consulting firm. Since the technology requires the cooperation of third parties, such as credit card companies and retailers, Samsung can use the streamlined process of making retailers aware of a mobile payment option and banks setting up credit cards linked to the payment system, that Apple has already initiated, Oglesby says.

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Another mobile payment player in the mix is PayPal, which announced today it will acquire Paydiant. Paydiant helps companies build mobile payments, offers and loyalty into their own mobile apps. It also developed the mobile wallet platform CurrentC for the Merchant Customer Exchange, which includes retailers Wal-Mart Stores Inc., Target Corp. and Sears Holdings Corp.

“This could potentially add PayPal’s extensive customer base to MCX’s merchant consortium, providing MCX with a ready-made customer set for its launch,” Peterson says.

Although MCX already has a lot of customers, the merchants do not have the customers’ payment information on file. PayPal does, Oglesby says. Rather than requiring new MCX customers to enter in their information, CurrentC can gather that information if a shopperlogs in with her PayPal account. 

Likely, there is an agreement between PayPal and the MCX merchants in place that would have been negotiated in advance of PayPal buying Paydiant, Oglesby says.Wal-Mart and Target do not accept Apple Pay in store, Oglesby says, likely because the MCX contract called for CurrentC exclusivity. Most MCX merchants do not accept Apple Pay in store and removed Apple Pay compatible hardware, such as contactless card readers, from their stores, he says.

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“It’s now even more likely that MCX merchants will move to block Samsung Pay from being used at its locations,” Oglesby says. “It’s about to get very interesting.”

 

Follow mobile business journalist April Dahlquist, associate editor, mobile, at Internet Retailer, at @MobileInsiderAD.

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