Worth the wait: Kakao Pay’s IPO

Written by Kapronasia || November 09 2021

The success of Kakao Pay’s IPO comes as a relief in many respects. The Ant Group-backed South Korean firm’s shares more than doubled in their November 3 debut, giving it a higher market value than many incumbents – just as was the case with Kakao Bank’s IPO – and assuaging concerns that an ongoing regulatory crackdown on fintechs could stymie its steady ascent.

Kakao Pay's IPO was worth the wait: The company raised 1.5 trillion won (US$1.3 billion) while shares more than doubled on the first day of trading, closing at 193,000 won after opening at 90,000 won. The Kakao empire now boasts two of the three most valuable financial firms in South Korea. Kakao Pay has a market cap of 19.4 trillion, No. 3 behind KB Financial’s 23 trillion won and Kakao Bank’s 28.2 trillion won.

With fintechs now accounting for two of the three most valuable South Korean financial firms by market cap, it appears that investors are betting that the fintech crackdown has run its course or will, in due time. The situation is quite different from China’s. While Beijing wants to rewire Big Tech in line with ambitious national political goals, Seoul simply wants fintechs to be subject to the same comprehensive regulation as incumbents. 

For instance, one issue contributing to the delay of Kakao Pay’s IPO (it had been scheduled for October 14) was that regulators felt that the company was “brokering” certain products, like securities, insurance products and loans, without the proper licenses. For its part, Kakao Pay maintained that it was “advertising” the products, though users can make investments with the Kakao Pay app. However, this problem can be overcome if regulators are content with licenses obtained by Kakao Pay’s subsidiaries. 

Meanwhile, investors have good reason to be sanguine about Kakao Pay. Most obviously, it is part of the most successful platform company in South Korea, and indeed, among the foremost in all of Asia. After seven years in the red, it finally made a profit in the first half of 2021. In the 12 months to June, the company processed 85 trillion won in transactions. Revenue has grown at an average pace of 102% over the past two years. At the same time, the company’s user base is enormous. Its 36.5 million users account for about 70% of the country’s population. 19.9 million are monthly active users. 

To date, Kakao Pay has focused almost entirely on the domestic South Korean market. It has been the right strategy for the company, allowing it to build strong market share while avoiding the cash burn that comes with costly international expansion. However, now that Kakao Pay can raise cash cheaply on the Kospi, it can start thinking about building a global footprint. Southeast Asia is the place to start, and Kakao Pay already has a small presence in Vietnam. The company is also reportedly eyeing China, which would not be an obvious choice (the Kakao Talk messaging app is blocked there) if not for Kakao Pay's ties to Ant Group, and even Europe. 

In an online press conference, CEO Alex Ryu signaled that the payments arm of Kakao Group would be on the lookout for potential partnerships, both at home and overseas. “Kakao Pay is fundamentally a financial platform, and we seek to maintain symbiotic relationships of mutual growth with other financial institutions,” he said. 

The company also plans to use its IPO proceeds to expand its offline payment infrastructure, roll out a buy now, pay later (BNPL) service, set up a digital non-life insurance subsidiary and launch a mobile trading system.