Apple Pay is losing ground to Samsung Pay in the United States and trying to hold on to its position in other global markets. A report released by Bloomberg finds that users are signing up for Samsung Pay at a faster rate than Apple Pay and Samsung's user engagement, or how often they actually use the app, is higher as well.
The mobile wallet market has been hampered by slow user and merchant adoption, but Samsung looks to be the company to change that. Just this week, Wells Fargo threw its lot in with the Korean electronics giant, offering Samsung Pay compatibility to its customers.
According to Crone Consulting, less than 5% of consumers with capable iPhone, Android and Samsung devices even bother to use mobile wallets, and you can't blame them.
There hasn't been any real reason for users to adopt mobile wallets, particularly since compatible point-of-sale terminals are still far from universal.
So why is Samsung pulling ahead of Apple and how is it getting users hooked on digital wallets?
Samsung's Killer App
The answer is Samsung's killer app: LoopPay.
LoopPay works by using the phone's NFC transmitter to mimic a magnetic-stripe card. Samsung Pay can talk to existing POS terminals as if they were NFC-enabled, so that the terminal doesn't know the difference between the phone and a card.
Any merchant with an old magnetic card terminal now supports Samsung Pay, whether they know or it not, as a recent ad starring comedian Hannibal Buress announcing the launch demonstrated.
Samsung acquired LoopPay in early 2015, back when the startup's technology was clunky and required extra hardware to work properly. Less than a year later, Samsung has perfected the technology and integrated it seamlessly into its Galaxy series of smartphones and Samsung Pay.
LoopPay's unique technology dissolves the biggest barrier to greater merchant and user adoption of mobile payment solutions.
The percentage of Samsung device owners who regularly use Pay is about 4%, according to Crone's research. Apple Pay's figures are slightly higher at 6%. But getting more users to sign up for Apple Pay will depend on converting more merchants and offering consumers more special discounts, bonuses and deals.
Samsung Pay users, on the other hand, are more like a cult following, according to Crone Consulting's CEO and founder Richard Crone.
We're already seeing merchants taking sides in the wallet wars in the United States. American Apparel recently threw its overpriced t-shirt into Apple's corner, following the path set by many other major retailers who were lured by Apple's big user base.
That fragmentation is not good for consumers. It's annoying enough when a merchant doesn't accept mobile payments, but it's even more irritating when they do, just not from your particular wallet.
Samsung Pay solves the problem of market fragmentation and merchant and user adoption by doing an end-run and making old technology compatible with new technology.
The integration of LoopPay's technology sharpens Samsung's edge over Apple, particularly in the United States. Major brands like American Apparel and KFC can choose to support Apple Pay, but many smaller merchants haven't even upgraded their POS terminals to the new EMV-enabled, chip-and-pin versions.
Fewer than 10% of merchants have NFC-enabled terminals, and the average cost of each terminal is about $500. Asking small merchants to pay for expensive NFC terminals just to support mobile payments from Apple users is out of the question.
Apple Strikes Back
As with its flagship product, the iPhone, Apple is looking for growth opportunities for its Pay app outside the United States.
Even though Apple's now the runner-up in the American market, it can still take the lead overseas. After finally reaching an agreement with mammoth Chinese credit card network UnionPay, Apple debuted its Pay app in China in February to a firestorm of early adopters. According to AppleInsider, more than 3 million cards in China were added to Apple Pay within the first 48 hours of its launch. Since then, more than 30 million Chinese users have signed up for the app.
Samsung was already losing ground to Apple in China, and the success of Apple Pay could be the last nail for the company in that huge market. In 2014, the South Korean device maker came in second place for mobile market share in China. Last year, Apple took third place and Samsung fell off the map entirely. There's almost no more competition from Samsung for Apple in China.
The top 3 mobile device makers in China are now Xiamoi, Huawei and Apple, and while the native competition supports mobile payments, Apple Pay is much more advanced. Add to this the fact that Apple's iPhones are a potent status symbol in China, on par with Gucci and Louis Vuitton, and Apple's place in the country looks secure for now.
However, the outcome of the FBI's case against Apple could radically affect Apple's privileged position in China.
Meanwhile, Google and Samsung are trying to catch up elsewhere. Android Pay is set to launch in the United Kingdom this month, although Google is going to have to deal with some trust issues if it wants to undermine Apple's foothold on the islands.
According to a recent survey by Marketing Sciences, Google is the least-trusted mobile wallet provider in the UK, with only 17% of Brits saying they would use Android Pay. Samsung is set to unleash its Pay app in the UK later this year, but its trust issues are even worse. Just 13% of Brits say they'd feel secure using Samsung Pay.
Apple and Mastercard, which have partnered up to offer Apple Pay users in London free trips about town on the city's buses and trains, fared slightly better with 27% and 25% of Brits saying they trust Masterpass and Apple Pay, respectively.
Apple's hip to the fact that bonuses and promos by merchants and card issuers will increase user adoption, but it's a sad comment that Apple has to pay users to use Apple Pay.
Samsung's not immune to giving its users some perks with their digital wallets either. For a limited time, Samsung is offering users who sign up for Samsung Pay a free Qi Wireless Charging Pad. Check out Android Authority for details.
Even so, the basic difference between the two rivals is that Apple Pay is relying on brand appeal, merchant adoption and user perks, while Samsung Pay is relying on a bleeding-edge technology that users can't get anywhere else.
It's a definite role reversal. For years we've associated Apple with innovation and considered other companies merely imitators. In the digital wallet arena, at least, Samsung's definitely stolen Apple's thunder with its LoopPay technology.