When Samsung Pay makes its debut in Singapore this year, its users will be able to tap their phones to pay at almost all retail outlets that accept credit cards, including those that have yet to upgrade to newer contactless payment terminals.
Rival mobile payment service Apple Pay, which is slated to launch here later this year, requires merchants to upgrade to new contactless card readers with Near Field Communication (NFC) wireless capabilities.
But Samsung Pay - which will be rolled out later this year by DBS Bank, OCBC Bank, Standard Chartered Bank and American Express - works with both NFC terminals as well as the traditional magnetic-stripe credit-card terminals.
Samsung Pay uses a proprietary Magnetic Secure Transmission (MST) technology that can interact with traditional card readers. MST uses a magnetic signal that mimics the magnetic stripe on a credit card, to enable payments.
Though banks in Singapore have all migrated from using magnetic stripe to smart chip-based EMV (Europay, MasterCard and Visa) chips on credit cards, Samsung Pay's use of MST does not mean a return of magnetic-stripe credit cards.
"The MST technology is different from the process of reading and using the data encoded on the magnetic stripe to effect payments at point-of-sale terminals," said a spokesman for the Monetary Authority of Singapore.
"As in the case of any new technology, we expect financial institutions to conduct their due diligence and address the attendant risks prior to adoption of the technology."
Consumers have to register their card details on select Samsung smartphones - such as the Galaxy S7 or Note 5, which have fingerprint sensors - before they can use their phone as a mobile wallet.
A user can store the information of up to 10 credit cards per phone. A security feature of Samsung Pay requires a scan of the user's fingerprint for each payment.
Since its launch in South Korea and the United States six months ago, Samsung Pay has registered five million users who have transacted over US$500 million (S$701 million) on the platform.
Samsung Pay uses a process known as tokenisation to enable payments. Instead of merely transmitting card information from the phone to the card reader, the process generates a one-time token that is sent from the phone to the payment terminal.
This token is recognised by payment networks, such as Visa, Amex and MasterCard, to authorise transactions. The token cannot be reused even if it was intercepted by hackers.
And it is the combination of security and ubiquity in the market that has prompted banks to look at making MST available here.
Mr Anthony Seow, head of cards and unsecured loans at DBS Bank, said: "Based on our understanding of payment networks that have enabled MST transactions in overseas markets, these transactions are seen to be as secure as EMV contactless transactions because of its tokenisation and encryption technologies."
He added: "The upside to making it available in Singapore is that it allows customers to use Samsung Pay in places beyond contactless-enabled points."
According to a global MasterCard report, 69 per cent of consumer spending in Singapore is done via electronic payments, which is higher than the global average of 66 per cent.
"It's not just the retailers that can benefit, as it also presents a huge opportunity to the transport authorities, as more than 2.5 million people ride the MRT every day. In fact, people would prefer to use phones to pay at train stations and buses instead of carrying yet another gadget or a card," said Mr Manjunath Bhat, research director at Gartner, on the wider use of Samsung Pay locally.
Another challenge is for banks and retailers to convince consumers to adopt mobile payment, as currently only 23 per cent of consumers here are willing to use this payment method, said Mr Bhat.
"It is believed that mobile payments in Singapore have not yet reached critical mass, given that they are used mostly for low-value payments."
A spokesman for Samsung said the company is in talks with other service providers here on Samsung Pay, but declined to reveal names.