Tuesday, March 3, 2015

Samsung Pay Changes Everything

The Samsung Pay application gives retailers the chance to control their destiny in the payment space. However, big block retailer predilection for restricting consumer choice instead of expanding consumer choice, likely will let this great opportunity pass by them unused. It is difficult to imagine the logic of angry retailer executives under siege by the payment services industry but their actions show their infantile understanding of something typically right in their wheel house: pricing.

The Samsung Pay application allows consumers to pay for purchases by sending a magnetic wave to the reader heads of a point of sale (POS) device. Thus a well designed POS device can process a wide range of transmissions including allowing consumers to choose a method of payment other than a payment card. Simple code changes within current deployed base of POS devices has the possibility of allowing consumers to change their method of payment to an e-check or ultimately a crypto currency and require their customers to pay them for more expensive payment choices.

The payment services industry will not sit idly if retailer surcharges soak cardholders, but the payment industry allows retailers to offer discounts for customers using cheaper methods of payment such as cash.  If retailers announce a convention such as track 2 beginning with digits not used by payment cards (such as 000) followed by financial data such as a routing and account numbers then  a POS device can originate a real time authorization request followed by fast settlement, without swipe fees, charge backs, or liability for the theft of a consumer account.

The best retailers will present a POS device that allows consumers to enter data that establishes proof of identity as a form of protection that separates a retailer from its competitors. Consumers though will ultimately react to lower prices for cheaper payment methods. If there is not a percentage plus fixed fee attached to the price of a purchase (such as a donut dipped in chocolate and peanuts accompanied with Hawaiian coffee with real sugar and cream) then all (including hospitals specializing in cardiac services), but the payment services industry, will rejoice and pay lower prices by using non-proprietary methods of payment.

Of course Samsung Pay presents the same risks of attack as Apple pay (see http://paymentnetworks.blogspot.com/2014/09/review-of-iphone-payment-initiation.html ) and there is no antidote for electronic theft at the least secure point of its transmission, however the price of admission for electronic theft continues to increase and the Samsung payment application raises the bar higher.  Fraud will decrease because of the ubiquity of magnetic stripe readers and not from the EMV boondoggle.

Will retailers use the capabilities of magnetic transmission to their advantage? Perhaps retailers will use pricing to combat the torment of the payment services industry. Perhaps financial institutions will offer portals for e-check approvals without acquirers. Perhaps pigs will fly.

Next Blog: POS architecture for Magnetic transmission

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