Could LG Pay cut it as a U.S. play?

Today, LG is officially throwing its hat into the mobile payments arena with the launch of LG Pay in Korea. Available only on the flagship LG G6 handset, its technology has a lot in common with Samsung Pay, but may not be much of a challenge to its rival if it should come to the U.S.

Like Samsung's Magnetic Secure Transmission (MST) technology, LG Pay's proprietary Wireless Magnetic Communication (WMC) system can emulate a magstripe signal wirelessly as a fallback on most terminals that cannot accept Near Field Communication payments. LG Pay will initially go live with four major Korean banks (Shinhan, KB, BC and Lotte) with all other local issuers participating by September.

What is not clear is whether LG has plans to launch this service in the US. If it does, the technology maker will encounter many challenges that its rivals did not face.

Pau Barrena/Bloomberg

Late to the table. While the overall usage of mobile payments remains low in the US, Apple, Google and Samsung have been working hard to bring issuers and merchants into the ecosystem to build foundations for the future.

Merchant acceptance capabilities are growing organically as a result of the shift to EMV terminals, with NFC functionality piggybacking on the wave of adoption. However, bringing banks into the fold requires time and effort and the U.S has a highly fragmented retail banking landscape, unlike Korea.

Apple currently has 1,872 financial institutions listed as participating in Apple Pay, Android Pay has 802 FIs on board and Samsung Pay has 1,014 FIs in the U.S. — adoption that Samsung attributes to bringing on executives with U.S. banking experience prior to launch. If LG Pay joins the fray, it will be at a significant disadvantage compared to the existing “Pays” that have already put in the bank acquisition legwork.

Further, many of the largest FIs have launched their own mobile payment solutions - why would they support a newcomer with zero traction that is direct competition?

A chicken with no eggs. LG is also something of a minor player in the U.S. smartphone market. According to ComScore, just 9.8% of U.S. mobile subscribers have an LG handset, way behind Apple’s 43.3% and Samsung’s 27.9% penetration.

One of the most critical elements in payment adoption is ubiquity, and being such a minor player, it is entirely possible that consumers will opt to use Android Pay, which is already live on the LG G6 device in the U.S.

A loyalty game. LG highlights a number of incentives to drive usage, including prizes, cashback and points rewards. If LG Pay launches in the U.S., these could drive some adoption, just as Samsung Pay has used its own rewards program running since November 2016 to incentivize adoption.

However, the rewards program has to be generous if it is to drive continued use. In Samsung's example, a $15 Sephora gift card is available for the redemption of 3,600 points which would be earned if the user makes 20 transactions per month for nine months.

This is quite a commitment. If LG intends to incentivize usage in the U.S., then it may need to provide a more compelling rewards program than Samsung, which will not be cheap.

It's possible that LG won't bring its Korean model to the U.S. in the same form, given the significant differences in payments landscapes between Korea and the U.S. But mobile payments are a global game, with Apple, Android and Samsung steadily adding countries to expand the reach of their digital wallets; if LG wants to be a serious competitor, it can't stay tied to its home market.