Analysis: Business Model for ‘OEM Pay’–Sell More Devices

Feb 4 2016

NFC Times Exclusive Insight – While LG Electronics has released few details about its planned payments service, LG Pay, or even revealed the technology it will use, there seems to be little doubt about its business model: LG believes it needs an additional payments feature to keep its devices competitive with rivals Apple, Samsung and other smartphone OEMs that might launch payments services.

Confirming rumors, LG has said it will launch LG Pay in its home base of South Korea with at least two large issuers, KB Kookmin Card and Shinhan Card. It did not confirm it would use NFC technology, but unless it were planning an e-commerce payments service only, which is unlikely, technology at the physical point of sale would most likely require LG to support NFC. And if that were the case, the payment cards would probably be stored on embedded chips in LG phones, though it’s possible LG could support host card emulation. UPDATE: There are credible reports that say LG Pay will use a physical smart card, not an embedded chip. Users could load all of their credit and debit cards onto the card using a Bluetooth connection from their LG handsets. An LG Pay wallet app would run on the phones. The cards would support contact and contactless interfaces, which consumers would use in stores to make EMV-enabled purchases. END UPDATE

LG also hasn’t said yet where it plans to expand outside of South Korea. It is very unlikely that LG would be able to charge a cut of transaction fees from issuers that participate in its payments service. Even South Korean issuers don’t seem likely to share revenue, though Korean issuers in past years may have yielded a small cut of transaction revenue to SK Telecom and KT to participate in the telcos’ NFC-based mobile wallets. SK Telecom and KT, however, needed to buy stakes in South Korean financial institutions in order to have what they believed was a viable business case for rolling out mobile payments. 

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