Communications of the ACM
Technology Replaces the Credit Card
The introduction of Samsung Pay and the Coin digital card could help drive alternative payments from novelty to mainstream.
Credit: Business Korea
Innovation in payments has been a key theme over the past several years, as companies look for new ways to change how we pay for goods and services. While Apple has been in the spotlight since the launch of the Apple Pay mobile payments scheme, Google, its primary competitor in the mobile operating system market, recently launched Android Pay. The alternative payments space is getting even more crowded, as a couple of newer entrants are looking to further disrupt the traditional payment card market.
Samsung, a major player in consumer electronics and the world’s leading smartphone manufacturer, has launched Samsung Pay, an alternative mobile payment platform. San Francisco startup Coin has created what it calls a digital card, which has relies on the familiar plastic card form factor. Both offer key technical enhancements which could help drive alternative payments from novelty to mainstream.
Currently, Apple Pay and Android Pay rely on the near field communication (NFC) protocol—often referred to as contactless—to enable payments. Yet only about a third of payment terminals in the U.S. are NFC-capable, according to VeriFone. Jonathan Ross, research director at payments advisory firm Panoramic Research, says many large retailers have adopted NFC technology at the point of sale, but millions of smaller merchants have not yet invested in this technology. Apple Pay and Android Pay are therefore at the mercy of merchants’ acceptance of contactless payments.
What separates Samsung Pay and Coin from Apple Pay and Android Pay is the fact that these newer payment schemes work on both contactless and traditional "swipe" payment terminals. "The technology being implemented by Coin and Samsung basically circumvent the NFC restriction, and have the potential to accelerate adoption of non-traditional methods of payment," says Ross.
With its flagship line of Galaxy smartphones, Samsung ships more smartphones around the world than any other manufacturer. The latest data from IDC shows Samsung held a 21.4-percent market share in smartphones worldwide; this compares to Apple’s 13.9-percent share of shipments. As the dominant device manufacturer worldwide, it is no surprise Samsung decided to enter the already-crowded mobile payments space.
How They Work
Samsung Pay uses technology that emulates a standard credit card, which the company says allows the service to be "available in more places than any other mobile payments service." The emulation technology was developed by LoopPay, a company Samsung acquired in February. The technology is based on Magnetic Secure Transmission (MTS), the same technology used to transmit data from the magnetic stripe on a standard payment card to the payment terminal. Samsung says its newer smartphones include a "special wire inside the phone" that enables it to send an MTS transmission to the magnetic card reader.
As with Apple Pay, users authorize Samsung Pay transactions through a fingerprint reader on their Samsung smartphone. This multifactor authentication makes Samsung Pay more secure than a physical credit card, which should further reduce fraud.
Coin has also taken an innovative approach to payments, one that uses a familiar card-like device. The Coin digital card looks and feels like a traditional credit card: it is made from plastic, giving it the same tactile feel as a standard card. Functionally, Coin also works like a standard credit or debit card: customers swipe the Coin card on standard credit card terminals or tap it on contactless terminals. The similarities between Coin and traditional cards end there, however.
Karthik Balakrishnan, Coin’s co-founder and CTO, explains, "Building Coin is difficult, especially given the small form factor. The finished assembly of our circuit board is thinner than a grain of rice. On that thin surface is 300,000 times more computing power than the guidance computer for the Apollo mission."
Upon inspection of the Coin card, users will immediately see what separates it from a credit card. First, there is a small liquid-crystal display on the Coin card, which displays information on the card. There is also a small button on the card that is used to choose the method of payment. Customers use a card reader to link payment cards on their mobile device, then sync the mobile app with the Coin card. Coin makes the card registration and transaction process simple and secure.
One criticism of Coin is the cost of the card; users that want the technology must pay $100 for it, which might give some customers pause. The company justifies the price tag with the unique technology. Coin is the only mobile-linked technology that is operating system-agnostic. The Coin mobile application is available on both iOS and Android platforms, so can be used on iPhones and Android devices—including Samsung smartphones. Customers also receive a card reader which they can use to link existing credit cards with the Coin card. Ultimately, the Coin digital card could appeal to consumers looking for a convenient way to replace multiple cards.
Samsung Pay hit the U.S. market on Sept. 28; Coin 2.0 devices are available for purchase and have started shipping (the original version has been available since April 2015).
Panoramic Research’s Ross predicts the next few months will shape the mobile payments market. "This holiday shopping season will be an important one for alternative payments providers, as multiple mobile payment schemes will be available for the first time ever. Consumers will have had the chance to try out different solutions, and see what works and what doesn’t."
Mark Broderick is a Tampa, FL-based senior research analyst covering the financial services and payments industries for ORC International.
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