2021 expected to be banner year for Kakao Bank, Toss

A smartphone user views Kakao Bank's mobile banking app. Korea Times file

By Kim Yoo-chul

Last year was a historic year for initial public offerings (IPOs). While 2021 is shaping up to be no less exciting especially for fintechs, Kakao Bank and Toss are considered as some of the top IPO candidates that deserve a closer look.

The COVID-19 pandemic was the primary reason for the stellar IPOs of some fintech companies last year. The pandemic triggered a major shift in consumers' financial services preferences to digital applications, which ended up boosting the appeal of fintechs to big investors. These developments have paved the way for more IPOs on the horizon.

Faced with increasingly stringent financial regulations, fintechs are turning to digital banks for growth due to their increasing popularity among consumers.

And amid greater regulatory scrutiny, competition and more digital bank license issuances, more M&As and opportunistic alliances among fintechs are expected to materialize as a means of boosting size, improving economies of scale and creating win-win strategies.

Kakao Bank is ideally positioned to raise more capital from its scheduled IPO due to three factors, according to analysts: the highest IPO capital-raising activity in over a decade, the removal of Ant Group as a rival and an upsurge in demand for fintech services.

Kakao Bank is opting to rely partially on existing players for certain products.

Kevin Kwek, a senior analyst at Bernstein Research, said he views Kakao Bank as a company set to become a "rare success story" among digital banks, managing to turn profitable just 18 months after its launch.

"The secret is Kakao Talk, a messaging application that brings traffic to both Kakao Bank and Pay, with 46 million monthly average users (MAUs), from 43.7 million in the third quarter of 2018. It controls 97 percent of the market and already boasts a penetration rate of 88 percent of the population as of the third quarter of last year," the analyst said.

Plus, the addition of strategic partnerships with relevant powerhouses like Ant, Tencent and existing Korean banks is also cited as a key reason behind Kakao Bank's success.

Kakao holds a 69.3 percent stake in Kakao Mobility and is also under a strategic partnership with U.S. private equity firm TPG. Also, it holds a 63.5 percent stake in Kakao Page with Hong Kong-based private equity firm Anchor as a strategic partner. Kakao owns a 56.1 percent stake in Kakao Pay with Ant Financial as a partner. Kakao also holds a 45.8 percent stake in Kakao Games and formed strategic partnerships with Tencent, Aceville, Netmarble and Krafton, according to Bernstein Research.

One notable point for Kakao Bank is that the digital banking application has Korea Investment, Kookmin Bank, Netmarble, Tencent, eBay and TPG as its partners. By the end of last year, Kakao Bank is estimated to have attracted around 750 billion won worth of investments.

"Kakao Corp. is now a clear majority shareholder which helped facilitate integration and capital infusion. Leveraging Kakao Talk's popularity, Kakao Bank started off with an aggressive pricing strategy on both deposits and loans. While this has begun to ease with pricing largely in line with peers, the lower fees on a variety of transactions continue to be a differentiator. The question is, of course, the impact on profitability," according to the analyst.

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