As it prepares to vie for customers in Southeast Asia, Kakao should bear in mind the experience of Alipay and WeChat Pay. Both are super apps at home in China. Both seemingly had a clear path to expansion in Southeast Asia. Both, however, have stumbled because their ultra-sticky messaging apps – their secret sauce in China – lack that stickiness overseas. Even in Singapore and Malaysia, two important international markets for WeChat, the messaging apps are most important for allowing Singaporeans and Malaysians to communicate with people in China – not one another.
In South Korea, Kakao Bank owes its success in part to the popularity of the Kakao messaging app Kakao Talk. However, outside of Korea, the app has very few users – except among Korean diaspora.
With that in mind, Kakao Bank will have to expand in Southeast Asia methodically. For instance, the South Korea digibank reportedly has its eye on the Indonesian market, which is understandable given its size and all the low-hanging fruit available. But to succeed there, Kakao will probably have to either tie up with one of the big conglomerates that dominates the Indonesian economy or alternatively, borrow a page out of Sea Group’s book and buy an incumbent bank outright and rejig it as a digibank.
In a recent report, as a word of caution to Kakao, The Korea Herald noted that the four largest Korean incumbent banks have all expanded to Indonesia: Hana, Shinhan, Woori, and KB Kookmin. However, in the first quarter of the year, though Woori and Hana reported net profits exceeding 100 billion Korean won each, Shinhan and KB Kookmin incurred losses of 1.5 billion won and 33.6 billion won, respectively.
Woori Bank attributes its success in Indonesia to the acquisition of the local lender Saudara Bank in 2014, later renamed Woori Saudara Bank. It has 159 branches across Indonesia.
In April, Kakao Bank CEO Yoon Ho-young said at a press conference that the company iis currently discussing expansion with two Southeast Asian countries. “It is expected that we will be able to announce a tangible result from one of these discussions by the end of this year,” he said.
The other country besides Indonesia could be Vietnam. The mobility arm of Kakao has been present in Vietnam since early 2020.