KakaoPay, Dreaming of a 'Financial Platform,' Continues Decline in Financial Service Revenue This Year

Suspension of Insurance Services Violating Financial Consumer Protection Act in Q3
Continuous Decline for Two Consecutive Quarters Due to Government Loan Regulations

[Asia Economy Reporter Ji Yeon-jin] Financial service sales, considered a key growth driver for Kakao Pay, have continuously declined since the beginning of this year.

According to Kakao Pay's Q3 earnings report on the 18th, the company's financial service sales in the third quarter amounted to 29.289 billion KRW, down 13.3% from the previous quarter. Sales in this business decreased from 35.276 billion KRW in Q1 to 33.783 billion KRW in Q2, and the downward trend continued into Q3.

Kakao Pay started in 2014 as Korea's first online simple payment service and expanded its business into financial services such as remittance, investment, loans, and insurance. Based on KakaoTalk, known as the "national messenger," the expansion from payment to a financial platform is considered the key to Kakao Pay's growth. For this reason, in the securities registration statement submitted to the Financial Supervisory Service for its IPO, Kakao Pay cited the concentration on simple payment as an investment risk and stated, "We are making efforts to diversify our business through the continuous launch of new services and entry into financial services, and as a result, the sales proportion of the simple payment service is steadily decreasing."

However, ahead of the enforcement of the Financial Consumer Protection Act on September 24, the Financial Services Commission raised the possibility that some of Kakao Pay's financial services constitute brokerage rather than advertising, potentially violating the Act. Consequently, Kakao Pay suspended its insurance and some investment services. In a subsequent amendment to the securities registration statement, the company stated, "The proportion of suspended services in our sales was about 1.2% as of the first half of 2021, so the impact on our sales growth rate is limited." As of the first half of this year, sales from suspended services totaled 2.593 billion KRW, including 1.647 billion KRW from insurance and 946 million KRW from P2P investment. The Q3 financial service sales decreased by 4.494 billion KRW compared to the previous quarter, a scale far exceeding the first half sales of the suspended businesses.

Kakao Pay explained that financial service sales declined due to a decrease in loan sales caused by government loan regulations. In response to the surge in liquidity due to COVID-19, the government began tightening household loans from the end of last year and introduced strong household debt management measures again last month following April. Given the anticipated interest rate hikes this year in Korea and other countries, the decline in loans was already expected.

However, despite confirming the decline in financial service sales from the first half of this year, Kakao Pay noted in the securities registration statement that "the proportion of loan sales expanded to 15.9% in the first half of this year."

This content was produced with the assistance of AI translation services.