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Kakao Bank Possibly Exposed to Conflict between Tencent and Alibaba
China’s Shareholder Risk
Kakao Bank Possibly Exposed to Conflict between Tencent and Alibaba
  • By Jung Min-hee
  • July 10, 2017, 02:15
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Ant Financial Services Group, the financial services affiliate of Chinese e-commerce firm Alibaba Group Holding, decided to invest US$2 million (230 billion won) in Kakao Pay in February this year.
Ant Financial Services Group, the financial services affiliate of Chinese e-commerce firm Alibaba Group Holding, decided to invest US$2 million (230 billion won) in Kakao Pay in February this year.

 

As Kakao Bank goes into full-fledged service later this month as the second internet-only bank in Korea, some raises concerns whether the bank can be seized upon by conflicts between China’s Tencent and Alibaba. The close cooperation with Kakao Pay, a fintech subsidiary of Kakao, is vital for Kakao Bank to have stable growth. However, Tencent and Alibaba, which bear enmity towards each other, are major shareholders of Kakao Bank and Kakao Pay.

According to investment banking industry sources on July 9, Kakao Bank will provide services through a separate application from KakaoTalk so nothing is more important than collaboration with Kakao Pay, a built-in service within KakaoTalk, is vital.

Currently, Kakao Pay offers services, such as simple payment and transfer of money, through the mobile messaging application. The number of its users stood at 14.5 million as of the first quarter, which was nearly twice more than that of most banks’ non-face-to-face channels. Kakao Pay has the cumulative payment transactions of 1.7 trillion won (US$1.47 billion) and has been used in 1,800 franchise stores. This is why some say that the partnership between Kakao Bank and Kakao Pay can create a bigger synergy than K-Bank.

However, Kakao Bank, which includes Tencent as one of its major shareholders, has become tense after Ant Financial Services Group, the financial services affiliate of Chinese e-commerce firm Alibaba Group Holding, decided to invest US$2 million (230 billion won) in Kakao Pay in February. Tencent now owns a 4 percent share in Kakao Bank and is the second largest shareholder of Kakao, which leads Kakao Bank, with 8.28 percent. The Chinese firm is engaging in management as Tencent Games Vice President Piao Yanli has served as non-executive director at Kakao.

Tencent, which has grown to the largest online game and instant messaging service provider, and Alibaba, which has grown to the nation’s e-commerce powerhouse, are in a tough competition as they are invading the spheres of each other by expanding their business areas. In particular, they are willing to copy and disrupt each other’s services. Even the local media reported that they are on cat-and-dog terms. In fact, Alibaba has launched the service copying Tencent’s “hongbao” service, which allows users to exchange cash gifts during the Chinese New Year, and Tencent has blocked the service at its WeChat messaging service. Alibaba’s e-commerce platforms – Taobao and Tmall – also do not accept Tencent’s WeChat Pay.

The conflict between the two sides can come to the fore in Kakao, according to industry sources. For instance, Kakao Bank and Kakao Pay will not be able to cooperate when it comes to the issues that have conflicting interests. In addition, Alibaba has a 4 percent share in K-Bank, a competitor of Kakao Bank, through Alipay Investment, raising such possibilities.

When Kakao Bank and Kakao Pay fail to collaborate, Kakao Bank can face more difficulties in growing than expected. An official from the investment banking industry said, “There are growing concerns that the war between Tencent and Alibaba in China spreads to South Korea and become an unexpected obstacle.”