Kakaobank's chief executive Hoyoung Yun
South Korea’s kakaobank is one of the world’s largest, purely digital banks. It passed the 10 million customer mark on July 12, and at the end of June it held W17.6 trillion ($14.5 billion) of deposits and had issued W11.3 trillion of loans. That is no mean feat for a bank that only launched in 2017.
Head office, in Pangyo about an hour south of central Seoul, doesn’t look much like a Korean bank. The office floor has massage chairs and a sleeping room. IT-related staff represent 40% of the workforce, and it shows; even the fact that our interview takes place over mango smoothies feels more tech than banking.
So what is it? Bank or tech play? Chief executive Hoyoung (Daniel) Yun differentiates kakaobank from China’s tech firms Tencent and Alibaba.
“They are techfin businesses,” he says. “They are tech-oriented and they don’t like regulation.
“In fintech, finance is the core, the centre. If we like to make some disruptive innovation in the finance sector, that means we need a licence.”
Korea is somewhat distinctive in this respect because it requires digital banks to seek a full set of licences in order to set up, rather than a slimmed-down version as is common in the UK and Japan, for example.
This is the case even though the whole kakaobank model is based on a single app.
“The primary strategy is speed and convenience in mobile applications,” says Yun. “We focus only on mobile applications: we want to be a mobile bank, not a website bank. The single application is everything for us.”
That creates considerable pressure to get it right.
“We have to be a survivor, so we have to be different,” he says. “Our difference is that incumbent banks are selling their products, not solving the problems of customers. We are about service, not product.”
The commitment to service has made it the most convenient app of its type in the country. On most bank apps in Korea, one has to go through a process of clicking for certification, then a password, and then the app. On the kakaobank app, a fingerprint gets you right to the account page, and the certification step is removed.
Like the best Chinese apps, it makes it extremely easy to transfer money among friends or to split a meal, but it’s also got a wider range of available services, including cross-border remittance and lending.
Kakaobank had two considerable headstarts in life. One was that South Korea has the highest penetration rate of smartphones in the world, with a population that is both able and comfortable using the internet and mobile systems to transact.
The other was because Kakao Corp, a big shareholder, operates South Korea’s dominant messaging app, KakaoTalk. The power of this messenger system cannot be overstated: customers are the equivalent of 88% of the Korean population, although some users will have multiple accounts of course.
Kakaobank turned profitable in the first quarter and feels ready for an IPO after two successful funding rounds
Putting the kakaobank app onto KakaoTalk was transformative: it was the perfect platform to penetrate the market, even though the two are separate companies. The combination of the two – digital bank and messenger platform – is also a useful illustration of the power of a brand.
You wouldn’t yet say that kakaobank has shaken up the market in asset terms: according to Moody’s, the two digital banks (the other, K bank, is a considerable way behind) account for only 0.6% market share in domestic loans. But the Financial Services Commission says it has had an impact in other ways.
“The conventional banks are very much influenced by the innovative and new services launched by the digital banks,” says Yoseop Jun, director at the FSC. “We think the digital banks are a great influence.”
Kakaobank turned profitable in the first quarter – earning W6.3 billion net in the first three months of the year – and feels ready for an IPO after two successful funding rounds with its existing shareholders in September 2017 and April 2018 that raised a combined $1 billion.
A listing will probably take place next year.
Despite the bank’s landmarks, there is plenty more to do.
“Economy of scale is key in a bid to make sizeable profits,” says Yong-woo (Yan) Lee, co-chief executive “Although the asset size of kakaobank is growing faster than any other conventional banks in South Korea, it is still lagging far behind big players such as Shinhan Bank and KB Kookmin Bank” in many areas, he says.
“However, it is just a matter of time,” Lee says. “We believe kakaobank has many strong points that other banks to not have, such as a young workforce and flexible corporate culture.”
The bank intends to generate more fee income rather than depending on interest income, Lee says, by finding partners to leverage the platform to attract customers.
Lee describes the finance platform model as “kakaobank’s destination”.
The bank wants “to become a platform like Amazon or Facebook in the finance sector,” he says. Through partnership, the bank “provides a virtual place where our customers and financial companies can meet and buy and sell activities.”
Having covered so much ground domestically, the next step is international, probably starting with those countries with a Korean immigrant population and well-developed IT infrastructure.
“Later we can expand into global markets, especially southeast Asia,” Lee says. “We don’t have a timeframe yet, but after we establish our business model in Korea, then we can have some partnership with global partners.”