Uneasy Views Toward the 'Major IPO' KakaoPay

Alipay, a Potential Obstacle to China Expansion
Stock Prices Amid Regulatory and Political Pressure
Possibility of Differentiation in Products and Fintech

Chairman Kim Beom-su of Kakao is attending the National Assembly's inspection of the Fair Trade Commission held by the National Assembly's Political Affairs Committee on the 5th. Photo by Yoon Dong-ju doso7@

[Asia Economy Reporter Junho Hwang] As KakaoPay's IPO approaches, concerns are growing within the asset management industry. Despite controversies over overvaluation, the listing process is proceeding, but there are many factors to consider before investing.

According to the asset management industry on the 26th, the biggest obstacle to KakaoPay's growth is Alipay, the Chinese company that has been involved since KakaoPay's inception and is the second-largest shareholder. An industry insider said, "Entering the Chinese market through Kakao characters can be considered the biggest growth potential, but since Alipay is the second-largest shareholder, this is expected to be practically impossible." KakaoPay CFO Jang Ki-ju also emphasized the close relationship with Alipay, stating, "Alipay is a long-term partner."

According to KakaoPay's prospectus, as the industry predicts, KakaoPay plans to use the public offering funds to strengthen its position in the domestic market. While one might expect plans to establish overseas branches or build systems such as servers for global expansion, there is no mention of such 'usage purposes.' The company only plans to invest about 50 billion KRW in domestic and international fintech acquisitions. At a press conference held on the 25th, CSO Shin Won-geun described the overseas expansion plan as "allowing KakaoTalk users to make payments without currency exchange in Japan and Macau, with plans to expand this to China and Southeast Asia." Considering the public offering funds exceeding 1.5 trillion KRW, the overseas investment plan is minimal.

As KakaoPay's focus market shifts to the domestic market after listing, pressure from the political sphere and government is expected to intensify, and due to the regulatory nature of the industry, KakaoPay cannot avoid being affected. A decline in revenue due to reduced merchant fees is already anticipated post-listing. CBO Lee Jin said, "Merchant fees are charged at the minimum level necessary to provide services," but added, "They have been significantly lowered through several adjustments, but there is a possibility of a slight further decrease." This statement came after criticism during the recent National Assembly audit that big tech companies' merchant payment fees are at least 1 percentage point higher than credit card companies' merchant fees. Over 70% of KakaoPay's revenue comes from payment services.

The loan service, a new growth engine whose revenue share is gradually increasing within KakaoPay, may face repeated suspensions and resumptions due to household debt issues. KakaoPay already suspended new loans for monthly rent deposits from the 8th to the 22nd. Especially with the presidential election approaching, the political sphere has summoned Kakao Chairman Kim Beom-su three times during the recent National Assembly audit under the pretext of reining in platforms. At that time, Kakao became a symbol of 'octopus-like management infringing on small businesses' and 'power abuse,' and Kakao's stock price fell 23.87% and KakaoBank's 29.82% in September alone. CSO Shin Won-geun said, "Platform regulations are being discussed, but they are an opportunity rather than a business constraint," adding, "We will evolve in line with government policies to gain trust and lay the foundation for growth."

The products KakaoPay will launch after listing include mortgage loans, MyData services, and insurance, but doubts remain about how much differentiation they can have from existing players. An asset management official said, "It remains to be seen how much the profitability of new businesses attempted with the public offering funds and efforts to achieve differentiated and sustainable results from existing offline financial businesses will meet market expectations."

Another industry insider said, "There is widespread skepticism within the IB industry about the appropriate public offering price," and predicted, "Given the high value-added nature of the industry, the valuation controversy will depend on how KakaoPay overcomes the burden of proving it through performance."

Meanwhile, according to Samsung Securities, as of 10 p.m. the previous night, the first day of KakaoPay's IPO subscription closed with subscription deposits of 2.0442 trillion KRW across four securities firms. This is a modest result for the last major IPO of the year, slightly surpassing Krafton's 1.8 trillion KRW, which was recorded as a failed IPO this year.