Samsung Expands Payment Business to New Smartwatch Products

Samsung Electronics Co. unveiled its new wristwatch device in Berlin Wednesday, which includes support for contactless payments, as the company pushes to catch up to Apple in a still nascent market of wearable products.

At the IFA technology tradeshow, the world's biggest smartphone maker introduced the Gear S3 Classic and Gear S3 Frontier - two variations of the same base product, which support Samsung Pay and on the Frontier version also allow users to make phone calls or even book an Uber ride from the device without the need for a smartphone to be connected.

"We want people to be able to leave their phone at home and use only the Gear," Tony Kim, from Samsung's global product planning team, said ahead of the product's announcement.

Samsung, which introduced its first wristwatch-like device in 2013 ahead of Apple and other rivals to carve a share of the just-forming wearable market, failed to draw people's attention to the new watch category. But it has steadily been increasing the feature sets of such products, making them less dependent on being permanently in range of a connected phone.

Apple is slightly ahead of Samsung in rolling out its Apple Pay contactless payment business - currently present in nine regions compared to Samsung's eight. Both systems let consumers register a credit or bank card to their phones in order to make small contactless payments in stores, taxis, or on public transport. And both companies now have wearables that support the technology.

But it's the cellular features of the Gear line that may be a sore spot for Apple, which had been trying to incorporate similar technology into the next version of the Apple Watch but ran into delays. The feature in Samsung's model allows the watch to have its own phone number for making phone calls, sending SMS messages or using apps from Spotify or Uber Technologies. Only US and Korean versions of the Gear will support this feature, with other regions needing Wi-Fi or to be connected via Bluetooth to a compatible phone.

Samsung's incorporation of cellular connectivity into the previous Gear models was a key contributor to the product line's success, according to market analysis published by research group IDC in July. "Focusing on the telco channel to drive future success in telco-driven markets is likely to remain the core strategy for Samsung moving forward," the group concluded.

Other features of the Gear S3 include a 1.3-inch color display, a GPS location sensor, 4GB of internal memory, wireless charging, and a battery the company says will last between three and four days on a single charge. It's also resistant to water and dust.

Just as Apple's smartwatch does not connect to Samsung's phones, Samsung's Gear S3 doesn't connect to its rival's iPhone range, although it's compatible with many competing Android devices such as those manufactured by Sony Corp. and LG Electronics Inc.

"We started a beta program for iOS in Korea on the S2. We opened it in beta to get feedback from our users about their experience," said Kim. "There are no plans at this point to do this with the S3 but we'll continue to revisit as we go along."

"Smartwatches will be the fastest growing segment of the wearables market in 2016, and 2017 promises to be an even bigger year," Morgan Evans, head of communications for Samsung in Europe, said in Berlin. The market for smartwatches specifically "will double in 2017," he said.

A May survey by the industry body GFU showed 22 percent of respondents plan to buy a smartwatch by the end of 2017, Hans-Joachim Kamp, president of the Consumer Electronics Association, said during the opening keynote at IFA on Wednesday. Sales of wearables more broadly - that includes everything from smartwatches to glasses - are expected to grow 58 percent globally in 2016 to 122 million units.

In July, IDC reported a year-over-year decline in global smartwatch sales, with 3.5 million units shipped in the second quarter of 2016 compared to 5.1 million units in the same period of 2015. Of those 3.5 million, 1.6 million were Apple Watch models. IDC's research showed that Apple was the only smartwatch manufacturer that saw declining sales year-over-year, with Samsung in second place.

"Consumers have held off on smartwatch purchases since early 2016 in anticipation of a hardware refresh, and improvements in WatchOS are not expected until later this year, effectively stalling existing Apple Watch sales," said Jitesh Ubrani, senior research analyst for IDC Mobile Device Trackers.

The new Gear S3 models are expected to be on sale before the end of the year.

© 2016 Bloomberg L.P.