Speculation over Samsung Pay turning to paid service intensifies

Arrival of Apple Pay in March prompts discussion of potential changes to Samsung Pay's fee structure.

Samsung Pay (Samsung Electronics)

Samsung Electronics' recent decision not to renew its existing contract with local card companies for its mobile payment service Samsung Pay has sparked speculations that the company might start charging fees for the service.

Under the previously signed contract with a local card issuer, Samsung Electronics was not entitled to receive separate commissions for Samsung Pay.

Since the initial launch of the Korean tech giant’s digital wallet service in Korea in August 2015, there have been no changes to the commission fee outlined in the contract.

“We sent out letters that inform all the local credit card issuers that we will not renew the current contract,” a Samsung Electronics official told The Korea Herald on Thursday.

“However, concerning what changes will be made to the contract, nothing has been decided yet,” he added.

The official explained that different details in the contract including collecting fees will have to be discussed with local credit card issuers from now on.

As notices must be given to card issuers three months before the contract termination date, Samsung has sent out letters based on the contract that ends earliest, which is in August.

“The same conditions will be applied to all the issuers, so it has to be renewed all together,” the official added.

Samsung Pay is the country’s top offline mobile payment provider with a market share of 23.5 percent in the first half of last year in terms of users’ transactions. It also accounted for about 80 percent of all offline digital payment transactions.

Speculation regarding Samsung Pay fees began circulating in March following the introduction of Apple Pay to the Korean market.

While both Apple and its current sole local partner Hyundai Card declined to provide detailed information about fees, industry insiders estimate that Apple charges a commission fee of approximately 0.15 percent on credit transactions.

Sources speculated at the time that Samsung may also begin collecting similar amounts of commission fees after observing Apple Pay's approach in Korea.

Meanwhile, Apple Pay is slowly expanding its presence among young users in Korea, where Samsung Pay has enjoyed its dominance.

According to Hyundai Card data from last week, individuals born between the early 1980s and 2000s are the main driving force behind the surge in popularity of Apple Pay since its recent launch in Korea.

Hyundai Card reported a 156 percent increase in the issuance of new cards since its launch, with a total of 355,000 new cards issued.

Among new cardholders, 51 percent were in their 20s, followed by 28 percent and 12 percent in their 30s and 40s, respectively.

The card firm also said that over 90 percent of new Hyundai Card subscribers have registered their cards for the service on their Apple devices.

However, whether Apple Pay will be able to expand further in Korea is still in question due to Samsung's dominance and the limited infrastructure.

In Korea, more than 70 percent of smartphone users have Samsung or Android devices, with iPhone users comprising less than 30 percent.

Also, only a limited number of stores are equipped with the near-field communication readers needed for Apple’s digital wallet service.

Out of approximately 2.9 million stores in Korea, it is estimated that only 60,000 to 70,000 have NFC readers installed.

This is also the main reason major local credit card companies are closely observing the initial partnership between Hyundai Card and Apple Pay but have not made any moves to start the service yet.

By Song Seung-hyun(ssh@heraldcorp.com)