Naver and Kakao, This Time the 'Digital Wallet' War

Naver Certificate 13 Million Cases
'Naver Pay App' with Enhanced Convenience
Has 30 Million Users

18 Million Users of KakaoTalk Wallet Using the National Messenger
KakaoPay Also Used by 36 Million

IT Rivals in Commerce Business
When They Dominate Payment and Certification
They Control the Entire Domestic Economic Activity

#Recently, office worker Yoon Hojin (34), who commutes using shared kickboards, manages his daily expenses entirely through the Naver application. On his way to work, he pre-orders and pays via the Naver app at his favorite restaurant, then picks up breakfast to take to the office. From coffee during lunch to convenience store shopping on the way home, he pays with ‘Naver Pay’ and even accumulates points. Throughout this process, Yoon never has to take out his wallet. This change comes as South Korea’s IT giants Naver and Kakao expand services that replace physical wallets with digital ones.

From ID Verification to Payment

According to the IT industry on the 11th, Naver has recently been intensifying efforts to expand its ‘digital wallet’ services. The issuance of ‘Naver Certificate,’ which verifies identity online, has surged from 3 million in January to over 13 million currently. Growing nearly fivefold in seven months, it is rapidly increasing its user base. The number of issued certificates for qualifications has surpassed 2 million. Additionally, Naver is building services that replace student IDs at domestic universities such as Yonsei University. By the first half of next year, mobile driver’s licenses will also be integrated into the app.

Launched on the 9th, the ‘Naver Pay app’ allows users to make offline payments, accumulate points, and place orders all within a single app, eliminating the need for a physical wallet. It also supports banking functions such as transfers and asset management. Previously, users had to navigate multiple clicks within the Naver app to access these services, but now the payment page opens directly through the Naver Pay app. A Naver representative explained, "There was demand from existing heavy users, and we improved convenience for new users as well." Currently, 30 million users utilize Naver Pay both online and offline.

Kakao has introduced ‘KakaoTalk Wallet,’ aiming to replace physical wallets entirely with KakaoTalk. This service allows users to store and manage certificates such as COVID-19 vaccination reservations, IDs, and qualification certificates within KakaoTalk. Kakao has placed both KakaoTalk Wallet and ‘KakaoPay,’ which supports offline payments, together in the KakaoTalk ‘More’ tab, enabling daily life activities solely through KakaoTalk.

Especially, the wallet service leveraging ‘the nation’s messenger,’ KakaoTalk, has significant influence. As of the second quarter, KakaoTalk Wallet users exceeded 18 million, and KakaoPay users reached 36 million. Kakao co-CEO Yeo Minsu stated during the Q2 conference call, "KakaoTalk Wallet will achieve 25 million subscribers by the end of the year and become a nationwide wallet service."

"Dominating Economic Activities"

The reason Naver and Kakao are so eager in the digital wallet war is due to growth potential. Fintech services including ‘Pay’ play a crucial role as future growth engines for both companies. For Naver Pay, transaction volume increased 47% year-on-year from 6.1 trillion KRW last year to 9.1 trillion KRW in Q2. KakaoPay’s transaction volume also grew 64.8%, from 14.9 trillion KRW last year to 24.5 trillion KRW this year.

Moreover, since Naver and Kakao operate commerce businesses directly, controlling payments and authentication amplifies their influence. They can utilize data on user consumption patterns gathered from payments to enhance online shopping or further develop existing businesses like platform advertising to generate revenue. This is why they are considered to have a significant competitive advantage over telecommunications and financial companies offering similar certificate and wallet services.

Additionally, when essential daily services such as payments and certificates are used based on Naver and Kakao platforms, a ‘lock-in effect’ that retains users can be expected.

Experts predict that Naver and Kakao will eventually dominate overall domestic economic activities including consumption and finance. Professor Wi Jeonghyun of Chung-Ang University’s Department of Business Administration said, "Pay services act like ledgers that allow viewing economic activities, enabling understanding of user tendencies and preferences, which can be applied to advertising and services. Since it is connected to e-commerce, a day will come when it will be impossible to separate domestic economic activities from Naver and Kakao."