Market cap of Kakao's fintech subsidiaries set to surpass conventional banks

The logos of Kakao Bank and KakaoPay / Courtesy of each firm

By Lee Min-hyung

Two financial subsidiaries of Kakao, the nation's dominant mobile platform operator, are set to surpass the largest financial holding company here, in terms of their combined market capitalization, after going public this year.

As of now, KB Financial Group maintains the leading position in the local financial market, with a market capitalization of 22.87 trillion won ($20.56 billion).

Kakao Bank and KakaoPay, however, are expected to raise as high as over 30 trillion won after their planned initial public offering (IPO), based on the rapid growth of the mobile-driven financial market in Korea.

The outlook for their post-IPO growth remains promising enough to pose a threat to other major banking groups here, such as Shinhan, Hana and Woori. As of the end of March, Kakao Bank, the nation's leading internet-only bank, attracted a monthly active user (MAU) base of 13.3 million.

On the side of retail banking, Kakao Bank gains a competitive edge against conventional banks with its simple and convenient banking platform. On the other hand, KB Kookmin Bank's mobile platform reached only around 8 million monthly active users.

Korea's brokerage firms estimate that Kakao Bank will be able to raise 20 trillion won after the IPO, which is slated for the latter half of 2021.

KakaoPay, a mobile payment service affiliate of Kakao, also holds a dominant position in the local market. KakaoPay users' accumulated transaction volume topped 67 trillion won in 2020. The company submitted an application for a pre-IPO document screening on Tuesday to the Korea Exchange.

Ahead of the IPO, market analysts have revised the target stock price of Kakao.

“A listing for the financial subsidiaries of Kakao is imminent and they are expected to go public sometime around July-August,” SK Securities analyst Choi Kwan-soon said. The securities firm raised Kakao's target price to 140,000 won based on the optimistic signs for the subsidiaries' stock market debut.

Conventional banks, however, shrugged off lingering concerns over Kakao's aggressive inroads into financial sectors.

“It takes an enormous amount of time for any new financial firm to win credibility and trust from the market,” an official from a major lender said. “Kakao Bank's post-IPO valuation will be huge enough to be on par with that of leading financial groups here, but that does not guarantee that the company can operate a variety of detailed banking services on a similar level as with conventional banks.”

The official said that Kakao's growth is praiseworthy in that the company has helped to set a new paradigm in the financial sector and demonstrated the robust growth potential of digital banking here.

Kakao Bank started turning a profit in 2020, reporting operating profits of 122.6 billion won, up over 800 percent from the previous year. KakaoPay is also reducing its deficit volume by a huge margin. The company reported an operating loss of 96.5 billion won in 2018, but cut the loss down to 17.9 billion won last year.