KDB bets big on fintech platform Toss ahead of 2023 IPO

The Korea Development Bank (KDB) has decided to invest 80 billion won ($72 million) in the fintech startup Toss via a rights offering. This marks the state-run bank's largest fintech investment to date, and also the first time for it to invest in an internet bank.

Toss has attracted over 450 billion won in the latest investment, bringing the total amount raised since its inception to exceed 1 trillion won, according to the investment banking industry on Jun. 4. The country's popular digital wallet is preparing for an initial public offering in 2023.

Initially, Toss had planned to raise around 200 billion won, but KDB invested more than expected which prompted other investors to also raise their investments. Investors including Altos Ventures, PayPal and KTB Network plan to carry out follow-on investments.

The company's valuation also surged threefold in just nine months, receiving an enterprise value of around 8 trillion won, which is more than 2.6 times its previous valuation of 3 trillion won estimated when it raised 206 billion won in new capital in August 2020.

Toss plans to use the proceeds to prepare for the launch of its internet bank Toss Bank in the second half of this year and to boost its services for its brokerage arm, Toss Securities, which launched in February and surpassed 2 million accounts in just three months.

The company's successful fundraising, despite the valuation hike, reflects the strong demand for internet bank investments.

Moving forward, industry watchers expect to see a fierce battle between the country's three internet banks -- K Bank, Kakao Bank and Toss Bank.

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The country's four major financial groups have also invested in internet banks. Kookmin Bank holds a stake in Kakao Bank; Woori Bank and Shinhan Bank have invested in K Bank, while Hana Bank has invested in Toss.

"Initially the financial groups participated via equity investments, but now they are positively reviewing the launch of their own internet banks," said an industry official.

Internet banks' improved performances have been attracting large investments. Recently, internet bank K Bank concluded a 1.25 trillion won capital increase, double the planned amount. Participants included large private equity firms at home and abroad, such as MBK Partners and Bain Capital.

Kakao Bank also raised 500 billion won from TPG and Anchor Equity Partners at the end of last year.

Armed with capital, the country's three internet banks are expected to go head to head in sales in the second half of the year.

There are high expectations for Toss despite being a latecomer to the internet bank industry.

"Financial authorities are requesting internet banks to increase loans for mid-to-low credit borrowers," said an industry official, explaining that other banks would need to change their portfolio since they mostly deal with high-credit borrowers.

However, Toss has been targeting mid-to-low credit borrowers for its internet bank from the beginning, adding to its competitiveness.

While other internet banks plan to make loans for mid-to-low credit borrowers account for around 30% of total loans by 2023, Toss aims to make it reach around 40 to 50%.

Write to Chae-yeon Kim and So-ram Jung at why29@hankyung.com
Danbee Lee edited this article