South Korean payment services company Kakao Pay Corp. will seek to piggyback its second-largest shareholder, Ant Group Co. Ltd., for overseas growth after a successful IPO.
Kakao Pay will use more than half of the 1.5 trillion won, or nearly $1.27 billion, raised in the IPO for growth via mergers and acquisitions. Shares of the affiliate of Korea's internet group Kakao Corp. nearly doubled on their Nov. 3 debut.
The biggest payments company in Korea, which rescheduled its IPO twice amid a regulatory crackdown on technology firms, may have a good shot at international growth as it plans to expand its business into China and Southeast Asia with Ant Group, possibly in the form of a joint venture or partnership.
If it tried to do it alone, "I may be less positive about the plan," said Jay Lee, Hong Kong-based partner at Simmons & Simmons, a law firm.
Several financial technology players are jostling for a slice of the mobile payments business as it continues to be a fast-growing sector in Asia-Pacific, fueled by consumer behavior changes during the coronavirus pandemic. Operators from China, India, Singapore and Indonesia all have ambitions to carve out bigger shares in the Asian market after establishing dominance at home.
Kakao Pay plans to use its IPO proceeds to expand its financial services offerings, from insurance to investment advisory, CEO Alex Ryu said at a press conference Oct. 25. Overseas businesses will become an important part of the company as it aims to target China, Southeast Asia and the Middle East, Ryu said.
Sibling harmony
Kakao Pay is also planning to ride on the popularity of KakaoTalk, the WhatsApp rival that is the dominant messaging service in Korea and is also popular in some other markets such as Thailand and Indonesia. In doing so, Kakao Pay may take a leaf out of the expansion strategy of some of the other Kakao group companies, including KakaoBank Corp. that had its stock market debut in August and is seeking to tap users of the chat platform for growth.
"This reaching power to the people has been allowing [Kakao Group] to successfully expand into other businesses," just as Tencent Holdings Ltd. did in China, Lee said. "Almost everyone in Korea may be using KakaoTalk."
Kakao Pay has over 36.5 million users and recorded 85 trillion won in transaction volume from July 2020 to June 2021, according to a company statement Oct. 24.
"Mobile payments are quite hot these days as they offer significant growth potential," said Oshadhi Kumarasiri, equity analyst at Tokyo-based LightStream Research. "A lot of companies are still interested in entering the space despite the competition," Kumarasiri said, adding Kakao Pay can potentially choose its partners from among several small and medium-sized startups in China, Southeast Asia and Europe.
Kakao Pay and Ant Group did not respond to requests for comment.
Kakao Pay is facing some challenges in its home market. In September, the payments firm had to suspend its car insurance comparison service because it did not have the required financial brokerage license.
"They are now working to acquire whatever licenses they need to conduct the businesses and services, which they could have done without licenses before," said Sanghyun Park, founder at Clepsydra Capital, a South Korea-based financial research firm. "Then, the question is, how they will cope with increased costs resulting from the new changes."
As of Nov. 2, US$1 was equivalent to 1,177.53 South Korean won.