KakaoBank’s push beyond Korea could benefit from the popularity of messaging apps

South Korean company KakaoBank Corp. will be able to reach millions of loyal users of Kakao Corp’s messaging app. once it begins to expand beyond its home market.

KakaoBank, the banking subsidiary of the Korean internet giant, plans to expand overseas after raising $ 2.2 billion in an IPO in August. A portion of the proceeds from the sale will be used for international growth, as well as the acquisition of fintech companies, according to the prospectus.

KakaoBank could target Thailand and Indonesia in its international plans, as these fast-growing economies are already the biggest foreign markets for Kakao Corp’s instant messaging platform. KakaoTalk, according to Celeste Goh, fintech analyst at S&P Global Market Intelligence. The popularity of the app in South Korea and has helped KakaoBank enroll more than 14 million monthly active users in the country, as well as make a profit just two years after it was founded in 2017.

“Southeast Asia could be an attractive destination for KakaoBank given the region’s growth prospects,†Singapore-based Goh said. Thailand and Indonesia in particular “could be of major interest,” she said.

The lender will continue to grow in Asia over the longer term, once it becomes South Korea’s leading retail bank, a company spokesperson told S&P Global Market Intelligence. When he begins this route, a likely route will be through local joint ventures.

“A combination of finance and big tech, such as KakaoBank, could be an attractive partner for businesses in Asia,†the spokesperson said.

The Digibank rush

Other tech companies have already followed a similar path. Email provider LINE, owned by South Korean company NAVER Corp., has formed a digital bank in Thailand with Kasikornbank PCL and another in Indonesia with PT Bank KEB Hana Indonesia.

Other Asian tech companies have also entered digital banking. Grab Holdings Ltd, based in Singapore. and Indonesian unicorn PT Aplikasi Karya Anak Bangsa, who operates under the Gojek name, both have added banking services alongside their main ridesharing companies. The Sea Ltd. digital entertainment platform. and Chinese Internet giant Tencent Holdings Ltd. have also entered banking, as well as Alibaba Group Holding Ltd. and its subsidiary Ant Group Co. Ltd.

Explosive growth

The popularity of KakaoBank in South Korea has helped its share price jump nearly 80% since its IPO on August 6. About 59% of South Korea’s workforce engages with the bank’s various financial services, such as a co-branded securities account, loans and credit cards. Kakao Corp. holds a 31.6% stake in the bank. Its payment subsidiary Kakaopay Corp. is scheduled to debut on November 3.

KakaoBank’s explosive domestic growth has been aided by the fact that KakaoTalk is used by around 90% of South Koreans, according to the company. The app penetration is lower in other markets, suggesting that it will be difficult to match these growth rates overseas, S&P Goh said.

“Its path to profitability in new regions could take much longer,†Goh said. Outside of South Korea, “it does not have a similar scale advantage and should probably invest more in customer acquisition.” Still, KakaoBank has proven to be more efficient than its peers, which would help ease the path to profitability overseas. Its cost-to-revenue ratio was only 44% in the first half of 2021, compared to an industry average of 55.45% among its local peers, based on data from S&P Capital IQ Pro.

As of September 24, USD 1 is equivalent to 1,181.27 Korean won.