The authors are analysts of NH Investment & Securities. Jung Jun-sup can be reached at email@example.com. -- Ed.
With its acquisition of Baro I&S, Kakao Pay has entered the securities industry. Aside from the likely impact on financial products markets, we believe the acquisition will have limited effects on overall profitability at domestic securities firms. In addition, we expect Kakao to enjoy rising synergy effects among its financial businesses, including banking, securities, and insurance.
Kakao enters securities industry
Following eligibility screening, the Financial Services Commission (FSC) has approved Kakao Pay to become a major shareholder of Baro I&S, giving Kakao Pay the green light to acquire the securities firm (which Kakao Pay has renamed as Kakao Pay Securities). Going forward, Kakao Pay is expected to embark on securities business in earnest and expand into a variety of fintech businesses in partnership with the Kakao platform.
Limited impact on securities industry vs. increasing competition in WM sector; Kakao to become fintech powerhouse
Securities Industry: 1) We expect the impact of Kakao Pay Securities’ launch on the profitability of domestic securities firms to be limited. In the domestic securities industry, WM (financial product sales) commissions account for only about 7% and MTS brokerage commissions only about 5% out of overall net operating revenue. 2) However, Kakao’s platform power should prove advantageous in the retail financial products market. And, going forward, additional fintech companies are expected to enter the securities industry. 3) Owing to the emergence of fintech-based securities firms such as Kakao Pay Securities and Toss Securities, existing securities players should feel motivated to strengthen alliances with fintech platform companies in the short term and raise capital for the purpose of profit generation in the long term.
Kakao: 1) With the launch of Kakao Pay Securities, Kakao is expected to promote services and financial products offering potential synergies with Kakao Pay, as well as establish an online non-life insurance company with Samsung Fire & Marine. 2) Kakao looks set to establish itself as a robust player in the fintech arena via the completion of a financial business portfolio encompassing the Kakao platform, Kakao Pay, Kakao Pay Securities, Kakao Pay Insurance (tentative name), and Kakao Bank.