Samsung Pay

Samsung Pay is a mobile payment service and digital wallet developed by Samsung Electronics. Launched in 2015, it allows users to make payments in person, in-app, and online using compatible Samsung phones and smartwatches. Think of it as your physical wallet's digital twin, but with a clever technological trick up its sleeve. Unlike its main rivals, Apple Pay and Google Pay, Samsung Pay was initially launched with dual-support technology. It could communicate with both modern NFC (Near Field Communication) 'tap-to-pay' terminals and older, traditional credit card readers that rely on a magnetic stripe. This unique capability, known as MST (Magnetic Secure Transmission), gave Samsung Pay a massive early advantage, as it worked at almost any checkout counter, not just the newly upgraded ones. This broad compatibility was a key driver of its initial adoption and a fascinating case study in overcoming infrastructure hurdles to challenge established players.

Samsung Pay's genius was its two-pronged approach to payments, making it the most versatile mobile wallet upon its release.

The real game-changer for Samsung Pay was MST, or Magnetic Secure Transmission. This technology, which Samsung acquired through its purchase of LoopPay, allowed a phone to emit a magnetic signal that mimicked the swipe of a physical credit card. This meant you could simply hold your Samsung device near an old-school card reader—the kind you've been swiping cards through for decades—and it would process the payment. It was a brilliant move because it leapfrogged the problem of merchant adoption; while rivals had to wait for retailers to upgrade their terminals to support NFC, Samsung Pay just worked almost everywhere from day one.

Samsung Pay also includes NFC (Near Field Communication), which is the technology behind the 'tap-to-pay' feature used by all major mobile wallets. It requires both the payment device and the terminal to have NFC chips that communicate over a short distance. While NFC is faster and arguably more secure, its initial rollout was slow. Today, however, NFC has become the global standard in developed markets. Recognizing this shift, Samsung has begun phasing out the once-revolutionary MST feature in its newer flagship devices, signaling that the payments war has moved to a new battleground.

From an investor's perspective, the story of Samsung Pay is not about a single product but about its role within a global tech behemoth.

Crucially, you cannot invest directly in Samsung Pay. It is not a standalone company with its own stock but an integrated feature of its parent company, Samsung Electronics. To bet on the success of Samsung Pay, you must buy shares in Samsung Electronics, the South Korean conglomerate that trades on the Korea Exchange (KRX: 005930). For most foreign investors, this is typically done via a Global Depository Receipt (GDR) or an American Depository Receipt (ADR). Samsung Pay's primary role is to strengthen the broader Samsung ecosystem. By making its devices more useful, it helps to:

• Create stickiness: A user who loves the convenience of Samsung Pay is more likely to buy another Samsung phone in the future.
• Differentiate products: In a crowded market, unique features help Samsung's phones stand out from other Android devices.
• Drive hardware sales: The service supports sales of high-margin products like premium smartphones and smartwatches.

A competitive moat, a key concept in value investing, is a durable advantage that protects a company's profits from competitors.

• The Original Moat: Samsung Pay's original moat was its exclusive MST technology. This advantage was wide and deep, as it offered unparalleled convenience and near-universal acceptance.
• The Melting Ice Cube: That moat, however, is a classic example of a melting ice cube. As retailers across Europe and America have upgraded their terminals to the NFC standard, MST's backward compatibility has become largely irrelevant in these markets. By removing MST from new phones, Samsung itself has acknowledged that this moat has all but disappeared. The mobile payments space is now a fierce battleground dominated by the big three ecosystems (Samsung, Apple, Google) and powerful Fintech players like PayPal and Block.

For a value investor, the key question is not “How much profit does Samsung Pay generate?” but “How effectively does it reinforce the core business of selling hardware?”

Samsung Pay is a fantastic product and a brilliant piece of business strategy that gave Samsung a temporary, but significant, edge in the mobile payments war. As an investment, however, it’s a feature, not a company. Its direct contribution to Samsung Electronics' bottom line is likely minimal. Its true value lies in its role as 'ecosystem glue'—a sticky feature that helps sell billions of dollars worth of phones, watches, and other gadgets. When analyzing Samsung Electronics as a potential investment, you should focus far more on its primary revenue drivers: semiconductor cycles, global smartphone market share, and consumer electronics sales. Think of Samsung Pay as the cherry on top of a very large, very complex industrial sundae. It makes the whole thing a little sweeter, but it’s not the main ingredient.