Why are KakaoPay, Toss eying securities industry?

KakaoPay CEO Ryu Young-joon speaks at a press conference in Seoul, Nov. 19. Korea Times file

By Lee Kyung-min

KakaoPay and Viva Republica, two budding fintech firms in Korea, are seeking to enter the securities market, unnerving the traditional industry players known for their strong resistance to newcomers and the ensuing disruptions.

In October, KakaoPay, the fintech subsidiary of Kakao Corp., acquired a 60 percent stake of Baro Investment & Securities, a mid-tier brokerage established in 2008 with 57.3 billion won ($50 million) annual sales and 7.3 billion won net income in 2017.

At least six months will be required for Viva Republica, the operator of financial services platform Toss, to set up a securities firm, 11 years after the last launch of state-run IBK Securities and KTB Investment and Securities, both of which began business in 2008.

KakaoPay said the acquisition will help the firm diversify business models by expanding the services from the current cash wiring or payment to investment in stocks, funds and real estate.

“Upon approval from the financial authorities, we will be able to provide more tailored services defined by tighter integration between Kakao's platform operation and Baro's financial services portfolio, our two strong suits,” an official from KakaoPay said.

“We expect our service will help effective asset management for customers with moderate income and young adults, mostly in their 20s or early 30s that wish to plan ahead with a trusted investment plan. We will continue to seek cooperation with card firms, banks and other securities firms to best tend to our customers.”

KakaoPay, which first launched the mobile payment service in 2014, has 23 million users as of December 2018.

More aggressive business moves are expected from Viva Republica's Toss, which secured $80 million (90 billion won) from Kleiner Perkins and Ribbit Capital, Silicon Valley venture capital firms first investing in the Korean market.

Kleiner Perkins is an American venture capital firm at which Mary Meeker, an American venture capitalist and an author of annual internet trends report, is a partner. The firm is best known for early bets on tech giants Google and Amazon.

Ribbit Capital is a fintech investment powerhouse whose portfolio companies include Coinbase, Robinhood and Credit Karma.

Toss said Dec. 10 that these investors estimated the firm's value at around $1.2 billion, an over 10-fold increase in less than two years. In March 2017, Paypal invested in the firm after assessing its value at 130 billion won.

Toss introduced a peer-to-peer (P2P) payment service in 2015 and has since been offering a range of financial services including balance and transaction history inquiries, credit score management, opening savings and installment accounts as well as customized insurance plans.

Of over 10 million Toss users, some 40 percent, or 4.02 million, are those in their 20s, an indication of the platform's growing popularity among the tech-savvy young generation, a potential, viable customer base with the launch of new securities firms.

But for the fintech firms to grow, face-to-face service channels should be strengthened, according to an analyst at Meritz Securities.

“Their customers will be quick to make online investments in stocks or bonds, the comparison of which is relatively easy given the available data is clear on the returns figure. It only takes a couple of minutes to see which one offers the highest yield,” the analyst said on condition of anonymity.

“But to broaden the customer base, the firms will have to offer a tailored face-to-face service that gives full and detailed explanation about financial products including funds, offered by large securities firms,” she said.