[Exclusive] "Thanks to Seohak Ants"... Kakao Pay Securities Turns Profitable in First Quarter

Surplus Likely in Q4 This Year... Employee Bonus Leave Granted All at Once
Thanks to Seohak Gaemi, Target Achieved Faster Than Industry Expectations
Transaction Fee Raised by 0.1%... Sales Increase Without Customer Loss

Kakao Pay Securities, which had been suffering from perennial deficits, achieved a quarterly profit for the first time since its launch. This was due to increased commission revenue from rising overseas stock trading volumes and a reduction in related losses as the real estate project financing (PF) market recovered.

According to industry sources on the 24th, Kakao Pay Securities is expected to turn a profit in the fourth quarter of this year. This is the first profit recorded since its launch following the acquisition of Baro Investment & Securities in 2020. In line with the management's initial promise to employees of granting special leave upon turning a profit, all employees were awarded a five-day bonus leave.

This profit turnaround is considered an achievement beyond expectations even within the securities industry. Kakao Pay Securities posted losses of 10.5 billion KRW in Q1, 9.1 billion KRW in Q2, and 6.2 billion KRW in Q3 this year. The securities industry had anticipated that while Kakao Pay Securities would rapidly reduce its deficit, turning a profit would remain difficult even next year. Shinhan Investment Corp. forecasted that Kakao Pay Securities would still incur an operating loss of 8.3 billion KRW and a net loss of 8.9 billion KRW next year.

The increase in commission from stock trading volume is seen as a key factor. Kakao Pay Securities' stock trading volume in Q3 this year was 12.5 trillion KRW, a 29% increase compared to the same period last year. The number of stock trades and stock holdings increased by 199% and 91%, respectively. Considering that commissions are charged per transaction, revenue also increased significantly. This upward trend continued throughout the year. In Q1 and Q2, quarterly stock trading volumes also rose to the 11 trillion KRW range, representing increases of 154% and 74% year-over-year, respectively.

In particular, overseas stock trading played a pivotal role. Kakao Pay Securities' overseas stock trading volume in Q3 increased by 95% compared to a year earlier. Despite raising the transaction commission rate from 0.05% to 0.07% at the beginning of the year, trading volume increased. At the end of September, the commission rate was raised again to 0.1%, resulting in higher profits. Foreign currency securities custody commission revenue, which reflects overseas stock brokerage income, reached 10.2 billion KRW on a cumulative basis by Q3 this year, an increase of 4.6 billion KRW compared to the first half of the year. This amount matched the total commission revenue from Q1 and Q2 combined. However, even at 0.1%, the commission rate remains among the lowest in the industry. Typically, securities firms' overseas stock trading commission rates range from 0.07% to 0.50%.

As the preference for overseas stock trading remains strong, voices suggest that Kakao Pay Securities' annual profit turnaround next year is within reach. According to the Korea Securities Depository, as of the 19th of this month, the amount of overseas stock holdings was 121.2 billion USD, already a 57.6% increase compared to the entire previous year. Private overseas stock investment balances have been growing at an average annual rate of 19% since the end of 2019. With the stagnation of the Commercial Act revision and the absence of a Santa rally unlike the US stock market, the number of "Seohak Gaemi" (Korean investors directly investing in US stocks) is expected to continue to grow.

Additionally, the recovery of the real estate PF market also contributed to the reduction in losses. A financial investment industry official stated, "Some of the PF projects held by Kakao Group after acquiring Baro Investment & Securities have seen improved profitability recently as the real estate market has risen."

The securities industry is also viewing the outlook positively. Heeyeon Lim, senior researcher at Shinhan Investment Corp., explained, "Kakao Pay Securities is close to achieving 10 billion KRW in quarterly custody commission revenue," adding, "Profitability improvement is expected due to increased sales and cost control."