What’s the Real Reason Behind Samsung Pay Going Fee-Free?

Samsung is poised to launch its mobile payments service Samsung Pay in Korea and the U.S. later this year. As reported by Business Korea, Samsung has decided not to collect fees on Samsung Pay. Samsung’s decision seems to be aimed at gaining a sizable portion of the mobile payments market in the initial phase itself. Samsung has decided not to charge the credit card companies it has partnered with. Moreover, Samsung is also planning not to charge value-added network service providers and online payment service providers for using Samsung Pay.

In the U.S. market, Samsung’s policy for credit card company fees is still unknown, but given the decision made for the Korean market, it is unlikely that Samsung will charge any fees in U.S. This clearly shows that Samsung is not looking to make a profit from Samsung Pay, but rather is looking to widen the distribution of Samsung Pay (and Samsung phones) by offering it as a free service.

Samsung wishes to get ahead of the competition by waiving fees, and this move might be aimed at Apple, one of its biggest rivals who has already established its own mobile payments system. Samsung Pay is already portraying itself as being ahead of Apple Pay by adopting the MST (magnetic secure transaction) technology alongside NFC. Samsung seems to be formulating a different strategy to gain profits out of its recent mobile payments business.

Prior to Samsung Pay, Samsung’s strategy to push Google Wallet had not worked well. Samsung’s past collaboration with PayPal, which saw a PayPal mobile payments app using fingerprint authentication on the Galaxy S5 model, didn’t make any significant impact in the mobile payments space either.

Is it possible that Samsung’s affiliates for Samsung Pay did not want to pay them as part of their agreements? Samsung’s list of partners include key financial institutions such as American Express, Bank of America, JPMorgan Chase, and the U.S. Bank, all of whom already support Apple Pay. Speculation is rife, but we will let you know when we have confirmed information.

The question still remains as to why Samsung made this move and what its strategy is for its future in mobile payments?

Some info about Samsung Pay:

The NFC portion of Samsung Pay is similar to Apple Pay and uses the same open infrastructure of NFC built on Visa PayWave and MasterCard’s PayPass systems that Google Wallet and Apple Pay use. The MST portion, the technology recently acquired as part of its LoopPay purchase, is supposed to work at 95% of merchants. This may be close to true in theory because MST simulates a card swipe through magnetic induction to the magnetic card reader head on the payment card terminal.