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MAG Sponsor Spotlight: The Alternative to NFC for mobile Payments and Better Customer Engagement (MAG Quarterly- Volume Four, Issue Three)

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By Will Graylin, Global Co-GM, CEO Samsung Pay, Inc.

September 1, 2016

As of July 2016, only a fraction of the 28% of U.S. merchants accepting EMV are accepting NFC.  Many merchants that have not implemented NFC have various concerns that go beyond integration and certification costs, ranging from tender choices and potential long term fees, to CRM and product return logistics, to the "Honor All Cards” implications – i.e. will supporting NFC force them to accept all NFC wallets, even ones from competitors?  Beyond those legitimate concerns and perceived “strings attached” to NFC, merchants are also asking “What are the real benefits and costs to supporting each digital wallet?”  

Unfortunately, the key merchant benefits of better customer engagement with wallet users is predicated on active usage of a wallet, but without enough acceptance of NFC today, users are not habitually using NFC wallets, thus a catch 22 for merchants to justify the cost of NFC.    

There is an alternative to NFC that does not require merchants to change their POS, is as secure as NFC without some of the complexity and perceived strings attached, and has enabled Samsung Pay to become the most habitually used mobile wallet in the market.  That alternative is MST (Magnetic Secure Transmission), invented at LoopPay in 2013, it is relatively new and has at times been misunderstood.  It is important for MAG members to understand the details of MST as well as NFC, so merchants can make informed decisions on their mobile wallet and customer engagement strategies.

Here are some facts about MST that may not be clear yet to many in the industry:

  1. MST is a transmission technology that leverages existing POS hardware, software, transaction networks to deliver payment data from digital devices (phone, watch, fob, etc.) to issuers, where the data can be tokenized and carry one-time-use cryptograms authenticated by the TSP.
  2. MST is enabling “potentially the most useful secure payment technology in the world” because of its tokenized payment can be accepted at approximately 90% of merchants worldwide, so users don’t have to revert back to swiping static mag stripe cards at most non-EMV locations, significantly reducing the chance of skimming and POS malware fraud for the user, issuers and merchants. 
  3. MST requires the user to actively transmit to the POS for only a few seconds, thus much less vulnerable to passively RF sniffing of contactless cards.
  4. MST does not require costly POS certifications for each network’s payment applet like NFC does (payWave, PayPass, etc.).  These NFC applets are required on the POS to speak the same language with the applet on the card or device, before passing on the payment data and cryptogram on to the network.  With MST, existing POS systems already use the same ISO protocols to receive payment data and cryptogram from MST devices, thus no additional work or certifications require for the merchant POS.  It is elegant, cost effective and highly secure.  
  5. MST can also be used to support merchant’s own payment methods, from Gift Cards, to Loyalty Cards to Private Label cards that already speak to the POS using the same ISO protocols.  This enables the digital wallet to store and use many more payment methods without requiring the POS systems to change. 
  6. MST carry Card Present Rates for merchants, and has No EMV Liability Shift issues, i.e. liability remains with the issuers, because the transactions are considered tokenized transaction using the same keys used by NFC, and a 101 service code to the POS.

MST is clearly a powerful alternative and addition to NFC in delivering secure contactless payment and digital wallet engagement without relying on an NFC migration to hit critical mass.  In Korea, MST has already enabled Samsung Pay users to generate hundreds of millions of transactions per year, averaging more than 10 transactions per user per month and growing fast.  In the U.S. Samsung Pay has the most active user base of any universal wallet, it supports both MST and NFC, and it supports QR as well as IR to support coupons and loyalty cards for laser scanners.  This transmission agnostic approach provides the most flexibility for consumers and merchants alike, and enables Samsung Pay to support many tender types for merchants: credit, debit, PIN debit, PLCC, Gift, Loyalty, Prepaid and even merchants’ own payment methods such as Starbucks’ QR codes – with faster access than using the merchants’ own apps, pulling up the tender with one flick of a finger from a locked or home screen.  The Samsung Pay app can also link to merchants’ apps and offers, to promote more downloads and usage of the merchants’ apps. 

Beyond payment cards, Samsung Pay also allow users to store all their loyalty, membership, ID, insurance cards, and more, making it a truly useful digital wallet that generates even more use.  As a result, Samsung Pay has the most active and engaged user base, and the highest rated digital wallet app in the market (4.7 Stars in Google Play).  Samsung Pay is working to deliver more features, to more users, across more platforms.  Its IOT initiatives including smartwatches that support Samsung Pay across Operating Systems, and its announcements for future online and in-app support are all indicative of Samsung’s desire to make its commerce services highly scalable across the largest number of users.  Its goal is to provide a secure container for consumers, and a conduit for merchants to better engage customers. 

As MAG members better understand the details of the different transmission technologies (NFC, MST, QR, BLE) and the advantages and disadvantages of each, they can better apply these technologies to help achieve their goals.  We hope this information about MST and Samsung Pay is helpful in your analysis, and as always, your feedback is valuable to me.