Apple and Samsung Electronics, the world’s two largest smartphone makers, are heating up the mobile payments space with Apple changing Passbook to Wallet and Samsung said to be planning to introduce a Samsung Pay-equipped smartwatch.

Apple also announced at its developers conference a Square-built mobile Apple Pay reader and a number of new big-box retailers that will accept Apple Pay. The expansion points to Apple’s intention to emulate Starbucks in fully integrating mobile payments and loyalty, while Samsung strives to keep Apple in its sights.

“This is a significant start, the addition of store cards and loyalty adds the functionality that’s needed to get to a true wallet platform,” said Thad Peterson, senior analyst for Aite Group. “However, it’s a merchant-by-merchant sale and it will take a while before there is a significant penetration of major retailer card and loyalty programs. 

“One key feature that they pointed out was the automation of loyalty acceptance, which will create a Starbucks-level user experience for loyalty at retail,” he said.

Apple Stores
Apple Pay’s Square built reader will be sold at Apple Stores.

With Apple’s iOS 9 operating system, loyalty cards will work with Apple Pay. Loyalty partners will include Dunkin Donuts and Walgreens. Apple also is integrating store cards, including retailers such as BJs, Kohls and JCPenney.

Promoting Apple Pay reader on Square’s mobile Web site.

Samsung plans to offer a mobile payments function in a smartwatch to be launched in the second half of the year, South Korea’s Electronic Times newspaper reported on Monday, citing unnamed sources.

Like Apple and Apple Pay, Samsung would use near-field communication technology to support mobile payments on the smartwatch, the report said.

“The competition is at the OS level, between Google and Apple,” Mr. Peterson said. “Samsung is in the third position, they have yet to launch their offering and it’s limited to Samsung devices where Google works on virtually all Android devices, including Samsung.”

Samsung’s play aims to take on Apple for device share and use payments as a tool to protect the company’s share from Apple incursion.

“Samsung is definitely trying to compete with Apple but when they launch they will be a year behind, and limited to one device brand,” Mr. Peterson said. “Apple and Google are in the best position to capitalize on the growth of mobile proximity payments.”

In nearly every situation, a POS terminal that accepts Apple Pay will also accept other NFC payment capabilities, such as Google Wallet. Apple is building the category and both Google and Samsung will be able to ride that wave. 

“Also, in-app is a major force in the evolution of payments,” Mr. Peterson said. “Again, the OS players win in this area and the linkage of in-app and proximity payments using the same platform will strengthen the value proposition for the providers.”

Apple is taking a page from the Starbucks playbook and integrating the ability to store multiple loyalty cards as a key component to Apple Pay.

“This means less to carry for consumers and more data for retailers,” said Wilson Kerr of Unbound Commerce, Boston.

Meanwhile, with Samsung and Apple at war, it is no surprise that Samsung is offering its own payment platform with a smart watch component, to answer Apple Pay.

NFC payments
The South Korean firm has said that its Samsung Pay mobile payments service, which supports NFC technology, will be available with “select partners” in July, the Electronic Times reported. The company did not immediately comment on the report.

Apple is emulating Starbucks with its broad strategy of payments and loyalty.

“While Apple beat Samsung in Q4 2014 in terms of units sold, Samsung maintains a healthy overall market-share percentage lead,” Mr. Kerr said.

“NFC tap-to-pay is finally on the cusp of happening and wearables appear to be an early vanguard in moving this toward broad consumer acceptance, since a watch is more personal and physically attached to the consumer and, as such, is seen as more secure.

“Unlike Apple Pay, Samsung’s solution supports secure magnetic transmission, which means retailers do not have to update their terminals to take advantage,” he said.

Final Take
Michael Barris is staff reporter on Mobile Commerce Daily, New York