The mobile payments industry is on the verge of evolution with key players like Apple Inc. (AAPL - Free Report) and now Samsung entering the market. Earlier, the market was primarily dominated by the likes of eBay Inc.’s (EBAY - Free Report) PayPal, Google Inc.’s (GOOGL - Free Report) Google Wallet and Amazon’s (AMZN - Free Report) Amazon Payments among others.
Apple vs. Samsung
The love-hate relationship between Apple and Samsung has been on for a number of years now. While the two companies compete in the smartphone market in the U.S., Samsung is also one of the important component suppliers for Apple.
Until the last quarter results, Samsung had a prime position in the smartphone market with Apple slightly behind it. However, according to a recent research report from Strategy Analytics, both Apple and Samsung are now tied for the top spot as they compete to become the largest smartphone vendor in the world.
The iPhone maker has been on a roll this quarter driven by the record sales of the larger-screened iPhone 6 and iPhone 6 Plus especially in emerging nations like China. The strong demand for Apple's offerings completely crushed Samsung sales in the last quarter. While Apple’s mobile shipments surged around 46% in the last quarter that of Samsung dipped around 13%.
The Battle for the Digital Wallet
In Sep 2014, Apple unveiled its mobile payment solution, Apple Pay designed on the basis of a contactless payment technology to offer a hassle-free experience. Apple Pay can be used through iPhone, iPad and also the upcoming Apple Watch to make payments.
Apple Pay uses fingerprint scanners for verification along with NFC (near-field communication), a radio-based technology that enables the exchange of data between devices that are held or swiped within a few inches of each other.
Not wanting to stay behind, Samsung has also made plans to venture into the mobile payments industry. Samsung Electronics America recently acquired LoopPay, a Massachusetts-based mobile payments start-up. According to media reports, Samsung is likely to incorporate LoopPay in its upcoming Galaxy S6 smartphone.
According to Samsung, LoopPay has an edge over Apple Pay as it is already working with around 90% of the retail locations in the U.S. in contrast to Apple Pay’s adoption at only 5% of retailers so far. Also, LoopPay is compatible with most of the existing POS terminals while Apple Pay (like Google Wallet) requires NFC-compatible POS terminals to work.
Apple’s market share in the U.S. smartphone industry is nearly 42% according to a report by Internet analytics company comScore, against Samsung’s share of only around 30%. Furthermore, as per recent trends, Apple has been steadily gaining market share in regions like China, Japan and South Korea.
A loyal customer base coupled with the increasing adaptability of iPhone and the Apple ecosystem is driving growth for Apple Pay. In the last few months after its launch, this mobile payment solution has gained huge traction with the number of merchants rising significantly. In fact, some of the merchants accepting Apple Pay like Panera Bread and Whole Foods have already confirmed that most of their NFC transactions are now through Apple Pay.
Apple Pay also has an edge over LoopPay in terms of security features. While LoopPay uses the customers’ actual credit card numbers, Apple Pay features the ‘Token’ system to ensure that the customer account is protected well.
Furthermore, Apple Pay features a unique concept of Touch ID authentication that allows users to make secure transactions. While this adds to the solution’s security, it also makes the transaction really hassle free compared to LoopPay.
Mobile Payment Market
According to a Forrester report, mobile payments in the U.S. are expected to surge from $52 billion in 2014 to $142 billion by 2019 with both national brands and local merchants. The growth will be driven by rapidly increasing adoption of smartphones. In the U.S., smartphone adoption has scaled new heights, constituting about 66% of the total mobile sales in 2014 compared with just 19% in 2009.
Furthermore, the exponential growth trend is expected to continue in the coming years. With increasing adoption, smartphones are also becoming more integrated in a people’s life with more and more avenues coming under the breadth of the mobile systems.
As such, we believe that Mobile Payment can be a lucrative industry going forward.
Though Samsung has acquired so-to-say, an established player in the industry, Apple has an edge in terms of technology. However, in the absence of clear visibility of Apple Pay’s growing adaptability and Samsung’s final version of LoopPay, it is difficult to take sides.
While both Apple and Samsung have fair chances of gaining from the booming mobile payments market, we will have to wait and see who takes the lead.
Apple currently carries a Zacks Rank #2 (Buy).