Making mobile transactions pay

We interview Thomas Ko, Global Head of Samsung Pay, Head of Service Strategy and Vice President at Mobile Communications business, Samsung Electronics, to discuss the rationale for mobile device makers to get involved in mobile payments and other services. We explore Samsung's ambitions in this field, how it could be impacted by new financial services industry regulations, and why Sweden was chosen as an early launch market for Samsung Pay.

Q: While Samsung is the global no. 1 mobile phone maker by volume, it is clear that your ambitions go beyond just supplying the devices. Your annual report specifically highlights aiming for more customer value through targeted growth areas like payment systems (Samsung Pay, which you head), cloud, intelligence and mobile B2B services. What lies behind these ambitions? Will having the biggest hardware volumes not be enough in the future? Or does Samsung have unique competences or scale in R&D to be able to exploit service opportunities related to the devices?

TK: Samsung is an innovation-driven company, and a very customer-centric company – we strive to create the best products and services for our customers. And our ambition includes the total customer experience, not just relating to our devices, but also to the software, apps and services associated with it. To us, these are natural areas to look at, to add to the total customer benefit from our products. We want to combine core systems and apps with our unique product experience, to create differentiated and valued user experiences.

Q: Samsung Pay was launched in 2015, and was developed from the intellectual property of a start-up company you acquired earlier the same year. What are the key features of Samsung Pay – in terms of simplicity, security and merchant coverage – that make it attractive to users, also compared with competing mobile payment services?

TK: Samsung Pay is anchored in the three core principles of simplicity, security and merchant coverage.

To us, any kind of application or service must strive for simplicity. We want the process of grabbing your wallet, taking your card out, and paying to be almost mimicked in your phone, but in a fun and easy way.

As for security, you could say that card payments have not really been that secure. You can use various reactive measures to protect yourself when being skimmed or defrauded, but you cannot really prevent it from happening. We aim to make mobile payments completely secure, through tokenisation, biometric authentication such as iris or fingerprint scanning, etc. And security enablement is through software, so merchants do not need to have any additional hardware for security checking purposes.

Merchant coverage is a critical factor, and we have found that acceptance of a digital payment solution is greatly helped by merchants being able to receive payments in existing, card-based, infrastructure. Our hardware being able to connect with their terminals instead of having to replace them, is a big selling point. We originally invested in LoopPay to develop a strong mobile payment solution, and then acquired it and brought it into what is today Samsung Pay. We have put a huge development effort into making our solution connect wirelessly with card reading terminals. And we are keen to expand our capabilities from pure payment to online, membership, transit, rewards and many other things.

Q: Samsung Pay has so far been launched in 16 country markets across the world. What are your ambitions going forward regarding global rollout and for market shares in payment services?

TK: Rather than putting a number on any ambition, I would revert to Samsung being innovation-driven and customer centric. And we have customers globally, who are using something from our offering for whatever need they have. We are of course interested in turning to our customers in all those countries.

Having said that, I have to point out that launching Samsung Pay in all those countries would not be easy. Every launch requires some collaboration with local banks, and often also some upgrades of local card payment infrastructure. In each case, for us to have a natural, unique place in the local payment ecosystem, taking into account existing local payment solutions, we are required to make a certain investment for our entry into the market. Theoretically, we could launch in any market with existing card-based payment infrastructure. But we will be rational, and take strategic decisions on launches, country by country, weighing the opportunity we see against the necessary investments for each market.

The 16 markets we have entered since launching Samsung Pay two years ago have been ready and eager, and there more markets in the pipeline. But not all country markets will be as easy for us to enter. In some countries, local players may see us as rivals, or at least be reluctant to make any effort to facilitate our entry.

Q: You started Samsung Pay in Sweden in March this year*, with initial support from Swedish banks Nordea and SEB, as well as Eurocard, Mastercard and VISA. What made you choose the Nordic region, and specifically Sweden, as an early market for the rollout of Samsung Pay? (*Open Beta started in March, the launch was in April)

TK: Why not? No, seriously, Sweden really stands out in an international context in early adoption of new technologies, being pro-innovation, and in moving away from cash payments. People are already accustomed to not paying in cash. From an impact perspective, Sweden should be one of the most interesting countries for evaluating the full potential of a mobile payment service. The Swedish banks are very supportive, embrace innovation, and see the benefits of introducing a service like ours in the market. To me, Sweden is a perfect market for an early launch.

Q: How do you think the European PSD2 (Payment Services Directive II) regulation due to be implemented in 2018 will affect your strategy and ambitions for Samsung Pay? Could it give you new or greater opportunities? Any obstacles?

TK: We see ourselves as a player in the industry, so we need to find out what we need to do to be able to comply, and how we can be of help for the regulated players.

To us, PSD2 is about fraud prevention, strong identification, and banks opening up to third parties offering services to account holders. Our ambition is to be one of those partners to banks, in payments or in other value-added services. I would argue that our strength in security should make us a good partner to banks in this area. We have already launched our Samsung Pass service, which incorporates fingerprint as well as iris scanning, and can adapt to any future biometric scan which could be required. We would like to be a partner that can help banks solve not only payment problems, but also other types of banking service problems.

Q: Do you see Samsung Pay remaining a pure transaction service in the future, or are there opportunities for you to increase the scope of the service to include, for example, credit products, customer loyalty schemes, or other value-added services?

TK: We will not be in the business of credit products like lending or deposits. We want to continue to be a platform and partner for the financial services industry. If partners from the financial services industry came to us and proposed that their credit or other products be offered and branded in our platform, we would welcome those ideas.

We have just started to provide membership services in Sweden. In other markets like South Korea, we aggregate membership cards, letting the customer see all membership balances in the phone. For integrated membership cards, points are automatically added through purchases with the phone. And we are currently providing transit and rewards services in South Korea.

We want to stay focused on meeting the needs of our customers, offering our services securely, and making them available from anywhere.

Q: Do you think the end game for mobile payment services will stay at tapping the phone on a point-of-sale terminal to pay at checkout? Or could mobile payments evolve into in-app, in-store payments, possibly in the future bypassing the checkout process to instead scanning products with the phone and pressing “pay” in an app?

TK: Offline payment is where we began, and wanted to solve a very significant problem. There are already well-established solutions for in-browser payments, and we are keen to expand our capabilities into this area as well. We are well underway in South Korea, where our in-app payments already represent 30% of local transaction volumes in Samsung Pay. We have expanded our partnerships to Visa Checkout, Mastercard Masterpass and others to be able to provide online in-app payment capability. We are also working with other devices such as Samsung Gear. We could potentially expand this into other Samsung products like fridges, TVs, and even in-car sound systems in the future.

Q: In a rapidly evolving payments industry, current roles of intermediaries like banks, payment service providers, credit card issuers and point-of-sale device makers could face significant changes, possibly further fuelled by regulations, and the entry of mobile device makers like Samsung and Apple into this arena. What do you think are the unique strengths of mobile device makers and banks, respectively, in securing their future relevance within digital payments?

TK: I think there is no getting around the fact that human lifestyles have embraced mobile phones. The smartphone has become the most important device in our lives. The average number of times we take out our smartphone today is around 150. And for people like you or I, the average could be 200, or even 300. The financial services industry is seeing the emergence and the importance of smartphones in people’s lives, and sees it as a risk, as mobile phones are not that secure.

At the same time, this is a radical cultural and behavioural change, which financial services industry players are embracing. It may require both software and hardware changes to mobile devices; biometric security being a good example. Iris scanning represents the highest level of security ever for these services. It could replace a lot of orthodox legacy processes and it is a competency of the mobile device makers. Customer needs and regulations are driving a need for features and functionality that already exist in consumer goods. I think the question should arguably be why should mobile device makers NOT be involved in payment solutions?

Q: What do you think innovation in digital payments will mean for the use of cash in society in the future?

TK: I think a cashless society would be highly desirable for the financial services industry and all institutions and entities involved in cash handling. But at the same time, there will be proponents of the anonymity that cash offers, and demand for cash. I think the benefits of digital payments will be very apparent, and that countries will increasingly have to fight for sticking with cash. India is one example where de-monetisation is starting to happen. Improving technology should be a strong driver for migration from cash to digital payments. The relative attraction of cash should gradually fade.

Will cash disappear entirely? As long as I can buy a coke with my credit card, I am fine with doing so. But there are countries, particularly developing countries, with cash-intense industries that will have an obvious need for cash for some time yet. I think the share of cash payments in economies will continue to shrink in the coming years, but I do not see the complete removal of cash from society happening anytime soon.

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