NHN Hanguk Cyber's Payment Gateway Service Soars with Rise in Contactless and Cashless Shopping

Expansion of Overseas Franchise and O2O Partnerships
Expecting High Sales Growth... Ample Funds Available
Revenue Generated from Software Development Fees
Financial Burden for Data Center Construction

With the revised Electronic Signature Act coming into effect on the 10th, the Public Certification Authority (PCA) will relinquish its exclusive status after 21 years. Discussions about abolishing the PCA began in 2014 with the so-called ‘Cheon Song-yi Coat’ incident. When the drama My Love from the Star gained popularity in China, many Chinese consumers tried to purchase the coat worn by the female lead Cheon Song-yi from Korean online shopping malls, but were blocked by the requirement to install ActiveX, preventing the purchase. This incident sparked criticism of the PCA, ultimately leading to its abolition. Going forward, the PCA will be replaced by the ‘Joint Certificate’ and will compete with various private certification services. This is why technologically advanced private online and mobile security companies and payment service providers are gaining attention. Asia Economy analyzed NHN Korea Cyber Payment and Aton, which are expected to lead the ‘post-PCA’ era.

[Asia Economy Reporter Lim Jeong-su] With the expansion of the e-commerce market, the growth trend of NHN Korea Cyber Payment, the No. 1 domestic PG (Payment Gateway) and online VAN (Value Added Network) operator, has accelerated. This achievement was made as consumers’ consumption and payment patterns rapidly shifted to online platforms due to the prolonged COVID-19 pandemic. The growth rate is expected to accelerate further due to expanded partnerships with O2O (Online to Offline) platforms, increased penetration into overseas markets, and the abolition of the PCA.

◇Expansion of contactless and cashless shopping... Record-high performance= According to the Financial Supervisory Service’s electronic disclosure, NHN Korea Cyber Payment achieved sales of 159.2 billion KRW and operating profit of 11.2 billion KRW in the third quarter of this year. Sales increased by a remarkable 41.5% compared to the same period last year, and operating profit rose by 31.5%.

With explosive growth in online and mobile shopping transaction volumes, the scale of performance growth has also steepened. According to the Korea Mobile Industry Association, the average monthly mobile shopping transaction volume in the third quarter of this year was approximately 2.2 trillion KRW, a 37.5% increase compared to last year. In particular, September set a new record with a monthly transaction volume of 2.3 trillion KRW.

The average monthly transaction volume for mobile shopping in the fourth quarter is expected to increase to over 2.4 trillion KRW. This is because online transaction volumes are likely to increase significantly in the fourth quarter due to events such as Black Friday and Christmas.

◇Growth acceleration through expansion of overseas merchants and O2O partnerships= The growth rate of sales is also expected to accelerate due to expanded partnerships with overseas merchants and others. At the end of the third quarter last year, the sales ratio from overseas merchants was only about 3% of the total. However, this proportion increased after COVID-19, reaching 8% in the first quarter and 10% in the third quarter of this year.

This is interpreted as a result of increased contracts with large merchants. NHN Korea Cyber Payment has contractual relationships with domestic companies such as Coupang, TMON, Baedal Minjok, Zara, Aladin, Musinsa, and Hotels.com. Additionally, it partnered with overseas platforms such as Apple App Store last year and Google Play in September this year, and previously agreed to provide payment services for Tesla. Recently, the possibility of a contract with Amazon, the world’s largest shopping mall, has been mentioned.

Park Ju-young, a researcher at Sangsangin Securities, said, "The proportion of sales from overseas merchants is gradually increasing and is expected to reach 15% next year," adding, "Overseas commission rates are 1.2 to 1.6 times higher than those for domestic clients, so sales growth and profitability improvement through expanded overseas penetration will be significant."

NHN Korea Cyber Payment is also expanding partnerships with O2O platforms such as delivery apps and accommodation apps. The company had already achieved its annual target of 50,000 merchant contracts by August and reportedly recorded 60,000 contracts cumulatively by September.

The abolition of the PCA is also expected to bring benefits. A payment industry official predicted, "If the PCA is abolished, consumers’ utilization of diverse and convenient contactless payment services will increase even more."

◇Debt-free policy and ‘cash-rich’ status= Based on stable performance growth, NHN Korea Cyber Payment has maintained a long-term debt-free policy. As of the end of the third quarter this year, total borrowings amounted to only 15 billion KRW. Considering that the expected annual EBITDA for this year exceeds 45 billion KRW, the company can fully repay its borrowings with annual earnings alone.

Meanwhile, cash and cash equivalents have increased by hundreds of billions of KRW annually, reaching 166.2 billion KRW as of the end of September. This amount exceeds borrowings by more than ten times. An investment banking (IB) industry official said, "Payment service companies typically develop payment software without large-scale facility investments and consistently generate commission income, so borrowings are unlikely to increase," adding, "They are expected to expand investment activities by utilizing increasing cash liquidity."

The official also noted, "There is a possibility that financial burdens such as building data centers may increase as the company expands into other businesses using consumer data secured from the payment business."