South Korea’s fintech wars put banks on back foot

KakaoBank

06/08/2021 02:55

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Sharon Lam
    HONG KONG, Aug 6 (Reuters Breakingviews) - South Korea’s
lenders may be collateral damage in the country’s fintech wars.
The $58 billion web conglomerate Kakao  035720.KS  is listing
its e-bank and payment affiliates. Meanwhile, financial services
super-app Toss recently raised new funds at a $7.4 billion
valuation. The extra firepower will help them dig in for a long
fight against each other, at the expense of incumbents.
    Kakao Bank  323410.KS  is one of just two online-only banks
in a country where over 90% of the population has a smartphone.
Thanks to its parent’s online heft in messaging and more, the
digital upstart boasts about 16 million retail customers and net
interest margins on a par with nationwide lenders including
Shinhan and Hana. Last month, it raised $2.2 billion in its
initial public offering, or roughly 90% of its capital as of
March. Shares opened 38% above their offer price when the
company debuted on Friday, before soaring as much as 74% above
it.  Separately, sister company Kakao Pay, backed by China’s
Ant, is aiming to raise up to $1.4 billion in a blockbuster
listing that could value its enterprise at up to $9 billion, or
about 38 times 2020 sales, according to analyst Oshadhi
Kumarasiri, who publishes on Smartkarma.
    The capital raisings will intensify the duo’s rivalry
against Viva Republic, which owns payments-to-stock trading app
Toss. The privately held company in June raised $410 million and
is gearing up to launch its own virtual bank later this year. As
with Kakao Bank, boss SG Lee is eyeing the unsecured retail
lending market worth some $230 billion, according to analysts at
Goldman Sachs. 
    Incumbents should take note. The market share of Kakao Bank
in unsecured retail loans has risen to 6% as of the fourth
quarter of last year from its launch in mid-2017, while large
commercial banks’ share fell slightly by 2 percentage points
over the same period, per Goldman analysts. Moreover, bank
mortgages and small-business lending, markets worth nearly $850
billion together, look vulnerable to digital disruption too. K
Bank, the other e-lender, for instance, is already dabbling in
online mortgages.
    There are formidable virtual barriers to overcome, though.
South Korea is already a mature market, so digital loan growth
will be limited. And the country’s banks are starting to fight
back with their own mobile offerings. South Korea’s fintech wars
are just beginning.  
    Follow @sharonlamhk https://twitter.com/sharonlamhk on
Twitter
    
 
    CONTEXT NEWS
    - Shares in South Korea’s Kakao Bank rose 38% above the
company’s initial public offering price on Aug. 6, its first day
as a listed company. The company’s shares started trading at
53,700 won per share, above their initial public offering price
of 39,000 won each, before rising to as much as 74% above the
IPO price in morning trade. 
    - South Korea’s financial regulator asked Kakao Pay to
revise its prospectus to raise up to 1.6 trillion won ($1.4
billion) in an August listing, Reuters reported on July 16. The
company had planned to offer 17 million new shares in an
indicative range of 63,000 won to 96,000 won each, which would
have implied a market valuation of up to 12.5 trillion won. 
   - Viva Republica’s Toss raised $410 million in funding in
June, valuing the company at $7.4 billion.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
South Korea's Kakao Bank shares soar in market debut    
 urn:newsml:reuters.com:*:nL1N2PD00C
S.Korean regulator tells Ant-backed Kakao Pay to revise IPO
prospectus     urn:newsml:reuters.com:*:nL4N2OS28W
BREAKINGVIEWS-South Korean digital comics sketch animated future
    urn:newsml:reuters.com:*:nL4N2MK21K
BREAKINGVIEWS- South Korea plays foolish game of IPO Whac-A-Mole
    urn:newsml:reuters.com:*:nL1N2OY027
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Robyn Mak and Katrina Hamlin)
 ((For previous columns by the author, Reuters customers can
click on  LAM/ 
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe
 | sharon.lam@thomsonreuters.com; Reuters Messaging:
sharon.lam.thomsonreuters.com@reuters.net))