South Korea’s Kakao Pay Pushes Toward A Public Offering

South Korea’s largest online payment firm, Kakao Pay, is moving toward a $1.4 billion initial public offering (IPO) later this summer. Per the IPO filing, the firm could walk out with an overall market cap of $11 billion.

The Ant Group-backed, Pangyo-based FinTech company is one of a series of South Korea firms to tap capital markets following South Korean eCommerce firm Coupang Inc.’s blockbuster $4.6 billion New York IPO earlier this spring. Heading to the public market now is gaming firm Krafton, while Kakao Bank, Kakao Mobility and Kakao Entertainment (all affiliates of  Kakao Pay’s parent Kakao Corp.) are all also considering listings next year.

COVID-19 “has fueled transitions to online financial service,” Alex Ryu, chief executive officer of Kakao Pay, said in a Bloomberg interview in May. “We were originally targeting the IPO in 2022 or 2023 but the plan has been brought forward because of the steep growth.”

Riding The Expanded Opportunity

Like many digitally native players, the pandemic ultimately ended up at tailwind for Kakao Pay, which saw its revenue double to $250 million (284 billion won) last year, while net losses dropped 61 percent to $21 million (25 billion won). The firm also reported its first ever quarterly operating profit as of Q1 2021.

Kakao Pay’s growth comes from its attachment to the nation’s largest messaging service, and is now looking to expand outward in its service offerings to move beyond money transfer and payment services and expand into areas such as securities trading and insurance. Kakao Pay already offers some investment products such as funds, after it acquired a local brokerage firm in February 2020.

Insurance is on the agenda for later this year as the firm seeks final government approval of its insurance ambitions to take on the market with cheap and shorter-term products designed for daily activities such as a one-day hiking trip or mobile phone damages.

The Long-Term Ambition

Spun off from its parent firm Kakao Corp. in April 2017, the company signed a strategic partnership with Ant Financial very shortly thereafter, a partnership that saw Ant pour a $200 million investment into the payment affiliate. Kakao Corp. holds 55 percent in the unit, while Ant has a 45 percent stake through Alipay Singapore Holding.

The partnership between the two firms allows the cross-use of their payment services. Deeper integrations and expansion had been on the plan pre-2020, but the expansion stagnated during the pandemic as people halted overseas trips, Ryu noted. That expansion is something the firm is eager to start pushing again as the world is reopening.

“We’d like to solidify our business basis for the next 2 to 3 years,” Ryu said. “We’re at the starting line.”

From that starting line, Ryu noted, the firm intends to take the funds raised via the IPO to invest in expanding the number of offline franchises that accept Kakao’s payment services. Only 600,000 offline stores in South Korea can accept Kakao’s payment service — leaving 1.9 million left to convert. The plan, according to the CEO, is to expand the number of stores to as many as 1.5 million. Kakao Pay has also confirmed plans to spend for new businesses and acquisitions to help accelerate its growth post-IPO.