What do forward-thinking, innovation-oriented bankers do when they feel they can't push through the industry's inertia? In the case of Thomas Ko, the answer was to move to South Korea to join the Samsung Pay team.
Ko took a job at Citigroup in Jersey City, N.J., nine years ago, and stayed there seven years working as the company's global head of mobile banking. Eighteen months ago, he took a job at Samsung working out of Suwon, South Korea, 13 miles south of Seoul.
“I feel proud, as a banker, coming to an electronics company and being able to support and lead the future of banking, which is digital,” said Thomas Ko, global general manager of Samsung Pay. “Being able to do the things I wasn’t able to do in the bank – but am able to do here, things that are near impossible to do because of the risks banks aren't normally able to take – is very exciting.”
Between Citi and Samsung, Ko launched his own venture, a customer-centric banking solution whose software relies on emotions and social relationships. It won Best of Show at Finovate in 2015.
A colleague of Ko’s, Samsung Pay vice president Haley Kim, worked at Wells Fargo in San Francisco for seven years, most recently as a senior vice president in the innovations and payment division. Kim joined Samsung Electronics in May 2014 to work on the launch of Samsung Pay as a business initiative for the company. It debuted in South Korea in August 2015. A month later, Kim oversaw its launch in the U.S., and now leads launches and operations for the Americas, which includes strategy development, product roadmap, marketing and partnerships.
Kim was placed at the head of the U.S. business just months ahead of Samsung Pay's September 2015 product launch. The experience of coming into this world from a major U.S. bank was kind of bizarre, she said.
“I joined in January … and was given a heads up for the [originally planned] July U.S. launch,” she said. “There was not even a single signed contract with a bank then. I said, ‘Hey, I just want to give you accurate expectations. Getting even one contract signed could take six months at a bank.’”
And bank partners were skeptical.
“They didn't believe the timeline,” said Kim. “When we said we would launch in July, they didn't believe us, they said, ‘You can’t really do this.'"
They were right, but only by a thin margin. "We signed everything by August," Kim said.
This momentum enabled Samsung Pay to launch in the U.S. the following month.
“It was an amazing experience,” Kim said. “It still is. We used to joke that one day at Samsung is like three days at a bank. So much gets done.”
The group is trying to build a core ecosystem with banks, who are growing more interested in the prospect for many reasons. First, the banks can innovate and bring value to customers without reaching beyond their regulatory borders. That constraint is familiar to Samsung Pay's ex-banker execs, especially the ones from U.S. banks, who began watching the digital shift that followed the financial crisis in their own country.
Mobile devices are now the most important channel for banks, Ko said, and now that electronics companies and mobile phone manufacturers are developing security, identification, verification and cloud infrastructure they can offer to financial institutions, banks have an opportunity to deploy innovative fraud reduction and risk mitigation solutions without spending a lot of money on them.
“Many banks are looking at us as a trusted partner who brings what they don't have – technology and enablement of core services on the most important device of future: the mobile phone,” Ko said. “Banks have risk-taking compliance structures we don't have, and don't want to have.”
For all the investment required by Samsung Electronics to build the Samsung Pay product, it’s not making any fee revenue from card issuers. Samsung’s product is a phone; its revenue comes from those sales, and Samsung Pay functions as a differentiator to fuel phone sales.
“Bank customers are also Samsung device customers and we see the commonality of serving the same customers,” he said. “It is a very mutually exclusive arrangement from the business perspective and allows us to transparently ask banks to invest and work together with us.”
Currently, Samsung Pay is forming a new bank partnership every week or two, according to Ko. It’s not clear how different that process would be if not for its leaders’ banking expertise. It got a leg up from Apple, which introduced its Apple Pay product a year earlier with some of the same banks and issuers, many of whom were skeptical about another mobile payment platform and balked at Apple's fees.
Samsung was spared from having to teach its partners about the software — with the exception of Samsung's Magnetic Secure Transmission technology, which is a unique feature that lets Samsung Pay make wireless payments on ordinary magstripe terminals. As the tech giant honed and tweaked its product, its partners were cooperative, Kim said.
Leaders with a deep enough understanding of the banking industry and the experience to push a product forward also know the relevant players.
“Selling [is best] done inside the banks, to the banks, to the network with payments executives around who ensure the idea of the technology is well understood,” said Ramesh Siromani, a partner in the financial institutions practice of A.T. Kearney, a global strategy and management consulting firm.
And in Korea, he added, “the payments world is pretty constrained in terms of regulation and how they operate in the credit card space. Gaining a person who’s been there and done that from the U.S. industry – bringing people from outside the country who have been through the cycle – will really open up people's minds.”
Samsung Pay's biggest obstacle is consumer behavior rather than direct competition, Kim said. Samsung is the dominant player in its home country of Korea. Some 90% of retailers in Seoul accept Samsung Pay, understand it and are familiar with customers using it as a payment method. But consumers in other countries have a mental barrier to mobile payments that have made them slower to adapt.
It’ll be a long time before anyone can determine a winner in the space.
“It would be great if it is Samsung Pay, but it doesn't have to be,” Kim said. “At this point, everyone needs to be successful – that’s how mobile payments will get adopted – and then move to the mainstream through early adopters.”