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Financial Regulator Worried about Kakao Pay's Investment Products
Kakao Pay Introduces P2P Money Lender's Products
Financial Regulator Worried about Kakao Pay's Investment Products
  • By Yoon Young-sil
  • November 22, 2018, 17:51
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The Financial Supervisory Service (FSS) has issued a verbal order to improve Kakao Pay's financial investment service, which was recently released in partnership with People Fund, a peer-to-peer (P2P) money lender, saying there is room for customers to misunderstand it.

The financial regulator has told Kakao Pay to make clear that investors are putting their money into products sold by a P2P company rather than products sold by Kakao Pay itself.

"Kakao Pay's investment service introduces Peoples Fund’s products. When investors click on the products, they are led to People Fund’s website. Kakao Pay simply earns ad revenues from People Fund,” said an FSS official. “So we have told Kakao Pay to find ways that would clearly inform investors that they are investing in People Fund products.”

More specifically, the FSS suggested that People Fund be specified at the top of each investment product page. Currently, People Fund is specified at the bottom of each product page as a “partner investment company.”

The FSS official said although Kakao Pay is informing investors of possible loss of principal, people could be lured by the company’s sales pitch that its products offer an annual profit rate of 10 percent.

Kakao Pay's seven investments that were released on Nov. 20 offer an investment return of 6% to 11.5%. Smaller investors can be attracted as the minimum investment is 10,000 won. As soon as these products came out, they were sold out. They were all products sold by People Fund.

Previously, the FSS requested the prosecution to investigate People Fund for selling “double collateral” products that could inflict losses on small sum investors. The products Kakao Pay introduced this time were found to have no such products.

The problem with P2P money lenders is that there is no legal basis at the moment to discipline them even when they commit irregularities, the FSS official said.

Kakao Pay CEO Ryu Young-joon, a computer science expert, said on Nov. 20 that the company manages risks so that there is little chance of investors suffering principal loss. He seemed to be suggesting that Kakao Pay manages customers’ investments.

"It is impossible for Kakao Pay to consistently earn 10% in investment profits annually without any possibility of loss," a source in the investment industry said.