Samsung Electronics ups the ante in competition with Apple

Samsung Electronics is aggressively expanding its business in a cutthroat competition against Apple, with recent moves implying that it may start charging a commission for Samsung Pay and open another store in Seoul next month.

A screen shows a mobile payment made through Samsung Pay on Naver's online shopping website on March 22. Samsung Electronics and Naver teamed up on a payment model to expand their influence both online and offline. [YONHAP]

Samsung Electronics is aggressively expanding its business in cutthroat competition against Apple, with recent moves implying that it may start charging a commission for Samsung Pay and open another store in Seoul next month.

Samsung notified credit card companies Wednesday that it will not extend the existing contract for Samsung Pay, an unprecedented move that industry insiders suspect may mean it will start charging a commission for the payment service.

It was the first time for Samsung to make such an announcement since the service was launched in 2015 and comes less than two months after Apple Pay kicked off its service in Korea on March 21.

Samsung on Thursday confirmed that it had sent card companies the notice of its plan to not extend the existing terms and conditions for Samsung Pay.

"The contract was usually automatically extended three months before its expiration," an industry source from a card company said. "Most industry insiders predict Samsung Pay will start charging a commission, though its form could differ from Apple Pay, which charges a commission fee for every transaction."

The decision was made to "strengthen the competitiveness of Samsung Pay," Lee Tae-yang, a professional at Samsung Electronics' communications team, said. Samsung accounts for 24 percent of the simple payment market in Korea.

Apple Pay, which launched with Hyundai Card, charges a commission on every transaction. The commission has been one of the major hurdles slowing other card operators from immediately jumping into the service as they suffer from declining sales.

Eight specialized card companies, including Shinhan, Samsung, KB Kookmin and Lotte, reported a combined 2.6 trillion won ($2 billion) in net profit last year, down 4 percent on year, according to the Financial Supervisory Service in March.

Samsung Pay users, including merchants, will not be directly affected even if Samsung does decide to start charging commissions because card operators are restricted by financial regulators from charging more than 1.5 percent to merchants, which, in turn, prevents the rise of product and service costs.

The regulators revise the rate every three years.

People walk past the Hyundai Card building in central Seoul on March 21, where Apple Pay is being promoted on the glass. Apple Pay was launched in Korea that day, in partnership with Hyundai Card. [YONHAP]

The quality of service provided by card companies could shrink as a result.

"The level of benefits provided to card users and the types of cards provided will inevitably be cut down because of the rise in costs," another source from a card company said. "Regulators seem to remain cautious on lifting the commission rate allowed to be charged to merchants because the matter is political."

More than 90,000 payments have been made through Apple Pay since the service was launched. An increasing number of stores have adopted the device required to process Apple Pay, including Starbucks, GS25 convenience stores, Costco and even budget carrier Jin Air.

As Apple Pay gains a foothold for its expansion, Samsung is strengthening its partnership with other rivals in the battle against Apple.

Samsung teamed up with Naver Financial in March to allow online shoppers on the portal giant to make payments through Samsung Pay. Under the partnership, Naver Pay can also be used at all the offline stores where Samsung Pay works.

"Samsung hasn't been charging a commission for Samsung Pay to raise its market penetration," according to Yoo Byung-joon, a professor who teaches management information systems at Seoul National University Business School. "But now that it has been raised and Apple Pay has been launched, it's changing the strategy."

Apple's other financial services include Apple Cash and Apple Card, provided in partnerships with financial firms in the United States.

"Samsung and Apple are in a position where they have to expand payment services in order to not lose their market share in the current smartphone market," a market analyst said. "And Apple Pay's launch has created a situation where it rouses less antipathy for Samsung to charge a commission on Samsung Pay."

The competition between the tech giants has spread to offline stores.

Samsung is currently working on a five-story store in Gangnam District, southern Seoul, scheduled to open this June.

The store will provide a space for customers to experience Samsung products and features.

Samsung said it first started planning the store back in 2018.

"Samsung opening its experimental store is a little late," Yoo said. "It was planned this way because experimental stores have grown into a global trend, but Apple seems to have sped up the timeline."

Apple opened its fifth Apple Store in Gangnam District in March after opening its first store, in the same district, in 2018.

BY JIN MIN-JI [jin.minji@joongang.co.kr]