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KakaoPay's plan to set up digital insurer facing setback
KakaoPay CEO Ryu Young-joon, left, and Financial Services Commission (FSC) Chairman Eun Sung-soo applaud at the ceremony for the launch of the open banking service in this December 2019 file photo. Courtesy of FSC
By Park Jae-hyuk
By Park Jae-hyuk
KakaoPay is facing difficulties achieving its grand goal of launching an internet-only insurance company in the second half of the year, raising concerns that this could possibly have a negative impact on its planned initial public offering (IPO).
The mobile payment unit of Kakao has yet to receive preliminary approval for the establishment of its digital non-life insurer, after applying Dec. 29.
Following KakaoPay's initial application, the Financial Supervisory Service (FSS) found several deficiencies in the documents it submitted, forcing the company to correct the flaws and resubmit the revised documentation March 19. The FSS then sent the results of its screening to the Financial Services Commission (FSC) in mid-April.
Because the FSC made a public announcement about KakaoPay's application regarding preliminary approval April 23, the financial regulator had been expected to discuss the matter at its regular meeting last Wednesday. However, the issue wasn't touched upon because the FSC has not yet finished its screening procedure.
“There are more criteria we should consider, such as innovativeness and consumer protection, because this is the first time for a tech firm to enter the insurance industry,” an official of the FSC's insurance division said. “We expect to finish the screening procedure in June or July.”
“We are waiting for the financial authorities' decision at this moment, but we have not changed our plan to set up a digital insurance company within the year,” a KakaoPay spokeswoman said.
According to sources familiar with the issue, the FSC has demanded KakaoPay specify how it will release insurance products that haven't existed before in the industry. The financial regulator is also reportedly going all out to minimize any backlash from conventional insurance companies.
When KakaoPay announced its application for preliminary approval earlier this year, the company said it would combine insurance with technology to protect its customers from everyday risks. It also promised cooperation with other Kakao affiliates to introduce innovative services.
However, such services are unlikely to be seen before the end of the year.
Even if KakaoPay receives preliminary approval in June, the company will have to apply for final approval within six months of this, and it takes a couple of months of screening before receiving the go ahead. After final approval, it could take an additional couple of months to establish an entity for the internet-only insurance business.
Another digital insurer, Carrot General Insurance, for example, was established in January 2020, after getting final approval in October 2019, nine months after its application for preliminary approval.
KakaoPay has already faced a setback in winning a license for the MyData business, which enables financial firms to receive their customers' credit information from conventional financial firms, so that customers can access all their financial data from one place.
Although it applied for preliminary approval for the license last December, the financial authorities delayed screening of the eligibility of its major shareholders since the authorities in China had not confirmed whether Alipay, which has a 43.9 percent stake in KakaoPay, was under any sanctions there. Other fintech firms, including Naver Financial, Viva Republica and Banksalad, secured their MyData licenses earlier this year.
A series of difficulties involving KakaoPay's new businesses are considered “negative factors” for the company's planned IPO, expected to take place in July at the earliest.
The fintech firm applied for a preliminary screening of its listing on the benchmark KOSPI market April 26. Lead underwriters for the IPO are Samsung Securities, Goldman Sachs and JPMorgan. Daishin Securities is also participating as a co-underwriter.