How Samsung's S8 secure element kicks the cash out of commuting

Gemalto’s embedded Secure Element (eSE) will be built into Samsung’s flagship Galaxy S8 in some markets, expanding current Samsung Pay capabilities to include transit and ticketing.

This could be an important development in solidifying Samsung’s position as the de facto form of contactless payment across its handset range and could even be catalytic in shifting consumer wallet preferences from analog to digital.

Removal of cash from transit systems. According to a 2008 Fed Boston Study, the cost of cash in a mass transit system was 22.5% of operating costs, compared to just 3.5% for credit and debit cards.

John Taggart/Bloomberg

There is also an inherent vulnerability due to human error. In July 2016, a report on the Boston MBTA cash handling operation noted that the physical location had holes in fences, missing keys, disabled cameras, a door kept together with duct tape, and other doors throughout the building left propped open. Attacking this kind of vulnerability head on, there have been a number of initiatives recently, from Glasgow to Singapore, that aim to digitize these cash based systems.

However, it remains to be seen whether the enhanced Samsung Galaxy S8 will make it to the U.S. given the plethora of transit networks in varying states of digitization, where projects in to digitize and create open payments in cities such as Chicago and New York lag far behind London's cashless digital open loop model.

Mass transit networks are intrinsically local and lack consistency in terms of their technical implementations, unlike U.S. payment infrastructure that is now widely centralized around EMV and NFC.

Cementing Muscle Memory. One critical element that mobile wallet providers have struggled with is the displacement of the habitual behavior of reaching for their physical wallet before reaching for a phone at the point of payment. Mass transit provides an opportunity to change this habit. “Transit presents an ideal opportunity for digital wallet providers because it is perhaps the only merchant category where consumers transact multiple times per day,” said Jordan McKee, principal analyst at 451 Research.

The more familiar the end user becomes with their phone being a card equivalent, the more likely they are to use it across multiple touch points and develop the muscle memory to instinctively grab their phone first when it comes to transacting.

Analog Wallet Replacement. Thus far, most digital wallet initiatives have focused squarely on provisioning of credit, debit and closed loop loyalty cards rather than on other types of cards such as transit, access and identity that are also required to be carried on a daily basis. The result being that the end user has to carry two wallets, a physical and digital one. In order for digital wallets to break from being an incremental add, all cards need to have a digital equivalent.

Digitized mass transit cards could be instrumental in building trust and acceptance of digital wallets, encouraging entities such as state and federal ID issuers to follow suit with digital cards and ultimately instigating a sea change where the physical wallet could actually be left at home.