Mercator Blog

Has LG Begun to Balkanize International Payments with a Payment Solution Limited to South Korea?
Date: November 24, 2015
Tim Sloane
Vice President, Payments Innovation

Mobile payments introduced to date have international acceptance built in because they utilize the international payment rails laid down by American Express, MasterCard and Visa; but now LG has announced a national payment infrastructure developed with local South Korean banks:

“Apple Pay, Android Pay, Samsung Pay… there’ll one more to add to the list soon. That’s because Korean phone maker LG just quietly outed plans to develop and deploy its own mobile payment service which, to the surprise of precisely nobody, will be called LG Pay.

“It’s official! We have partnered with Shinhan Card and KB Kookmin Card to prepare for the launch of LG Pay,” the company said in an update on its Facebook page.

Those partner names will mean precious little to most TechCrunch readers, unless you happen to live in South Korea or know the country well. That’s because they are local banks that LG will work with to launch LG Pay in its native Korea first. There’s no word on an international launch at this point. An LG spokesperson declined to give more specific details about LG Pay, but did tell TechCrunch that the company ‘will have more details in the coming weeks.’ ”

The challenges that lay ahead for LG to become an international TSP are discussed:

“While LG Pay might have a shot at becoming prominent in Korea, where it is among the top phone vendors, it is hard to see the service making much of an impact overseas — where LG lags Apple, Samsung and others on sales and there are already a clutch of ambitious mobile payment providers. That’s unless there’s space for four different payment mechanisms, along all the third-parties that are in the space, too. Seems unlikely, right?

It might sound unfair to make such a negative assertion before the product has even dropped. But if the challenge is tough for even Samsung, which has significantly greater marketshare than LG and a mobile payment solution that supports a wider selection of payment methods than Google and Apple’s offerings, then it is even stiffer for its lesser rivals.”

It is more likely that LG expects it will utilize Google to provide the international payment footprint by utilizing Android Pay outside of South Korea. But those negotiations would become very contentious if LG tries to keep the South Korean market to itself by not enabling other Android Pay implementations to work inside South Korea. So the question is this; “Does LG, in cahoots with other South Korean partners, think it can build a pay fence around the South Korean market and then charge a fee for others to access it?”

In theory, LG could work with local banks to enable a unique payment solution for South Korea that doesn’t use MasterCard, Visa or any other international payment network. In this scenario South Korea becomes a payment island that can decide which manufacturers are allowed to participate, which might start a worrisome payment balkanization process. It is unlikely that Google or the international payment networks would be willing to let this occur, because there are too many countries that might follow that lead. This is without a doubt a situation worth watching!