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Kakao drops 10.1%, Naver falls 7.9% on potential big tech crackdown

Experts share differing views on whether it's just political rhetoric or onset of more regulations

By Sep 08, 2021 (Gmt+09:00)

Kakao drops 10.1%, Naver falls 7.9% on potential big tech crackdown
South Korea may be following China’s lead in cracking down on big tech firms. The country’s two leading tech giants Naver Corp. and Kakao Corp. lost 12 trillion won ($10.3 billion) in market cap in a single trading day on growing concerns over platform regulations.

On Sept. 8, Kakao’s market cap dropped 10.06% to 61.6 trillion won ($52.7 billion) from 68.5 trillion ($58.7 billion) the previous day. The stock prices of its banking unit KakaoBank Corp. and its game publisher Kakao Games Corp. also respectively dropped 0.96% to 72,300 won ($61.91) and 3.76% to 74,300 won ($63.62).

Naver’s market cap was also cut by 7.87%, from 73.2 trillion won ($62.7 billion) to 67.3 trillion won ($57.6 billion). While Naver maintained the third position on Kospi in terms of size, Kakao lost its fourth position to Samsung Biologics Co.  


Kakao Group, which has become a major conglomerate in the country with its size projected to be on par with the LG Group or the Hyundai Motor Group, is the main target of politicians calling for more control in the tech sector.

Members of the ruling Democratic Party of Korea (DPK) within the National Assembly held a discussion forum yesterday to address some key action points: protecting small business; preventing platform giants' unfair business practices; and dealing with what is deemed indiscreet business expansion by the tech giant Kakao and its 118 affiliates.

“Kakao must not follow the steps of the country’s other conglomerates that ignored fairness and coexistence in the sole pursuit of profit,” said the DPK leader Song Young-gil.

Ruling party politicians and industry representatives are calling for more regulations on Kakao.
Ruling party politicians and industry representatives are calling for more regulations on Kakao.


While the ruling party has not come up with anything tangible yet, the administration is already taking specific action in the financial sector.

South Korea’s financial regulators Financial Services Commission (FSC) and Financial Supervisory Service (FSS) ruled on Sept. 7 that the financial product recommendation services currently offered by the country’s fintech platforms such as Naver Financial Corp., Kakao Pay Corp. and Toss, violated the new Act on The Protection of Financial Consumers enacted in March this year.

“While the platforms operating such services argue that they were doing so for advertising purposes, we reviewed that the services fall under the domain of financial brokerages, which require registration,” said the financial regulators.

Categorized by the financial regulators as unregistered companies, the fintech firms will no longer be able to recommend financial products of external parties to its users. They will also be prohibited from selling their financial products jointly with credit cards or insurance as bundled products.

“Such interpretation by the regulators is questioning the very existence of fintech companies in this country,” said a fintech industry official.

The financial regulators have asked fintech companies make appropriate revisions on their digital platforms prior to the end of the relevant law’s grace period on Sept. 24.

Even if the fintech firms want to register themselves to continue their activities, South Korea’s current laws are full of gray areas that prohibit them from entering traditional financial sectors such as insurance. Specifically, the fintech firms are legally categorized as “electronic financial enterprises,” which cannot sell insurance according to the country’s Insurance Business Act.

Kakao Bank and Kakao Pay are likely to be hit by the new FSS and FSC ruling.  
Kakao Bank and Kakao Pay are likely to be hit by the new FSS and FSC ruling.  

While the financial regulator FSC had earlier said that it will devise legal grounds to allow online platforms to register as an insurance business, no specific timeline has been set up yet. The situation is similar in other financial segments such as credit cards.

“The recent legal interpretation by the financial regulators will likely cause inconvenience of the consumers who will have to visit each financial firm’s website to compare each product,” said an expert at a major law firm.

The fintech companies had largely operated or halted their services at the absence of a clear-cut interpretation by the regulator. Naver Financial, which was planning to launch a car insurance review and recommendation service last year, stopped the project when questions were raised regarding whether the business model was closer to advertising or brokerage services. The financial regulators this time have specified Naver Financial’s project as within the brokerage domaine.

The regulators also pinpointed Kakao Pay’s fund recommendation service and Toss’s credit card recommendation service as brokerage practices.


Recommending the financial products of other companies is a key revenue generator for fintech firms.

The growth strategy of the fintech firms so far can be summarized in two stages. In the first stage, the fintech platforms try to draw in as many users as possible through a wide range of free financial services such as free remittances and instant payments. In this stage, the fintech firms are not profitable as their services cost commissions to be paid to the banks and securities firms.  

In the second stage, both revenue and profit take off by recommending subscription or creation of insurance, funds, savings and credit cards of other companies. The fintech firms can earn commissions from the banks and securities firms during this stage.

The fintech startup Toss is also likely to be impacted by the regulations.
The fintech startup Toss is also likely to be impacted by the regulations.

The financial regulators’ recent decision, at the same time, may also hurt some smaller-sized financial companies who have been relying on these online platforms for sales.

“The new ruling means that we now have fewer channels to sell our financial products,” said a representative of a mid-sized financial firm.

Experts highlight that the issue here is that the financial regulators’ interpretation came too late, just two weeks before the end of the grace period of the new law.

“We already warned the companies to be careful about their brokerage services, and notified the fintech companies individually last month. We gave them enough time,” said an official of a financial regulator.

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While experts note that Naver’s and Kakao’s platform business model will continue to thrive, the valuation premium placed on their shares to date may be reduced.

“What the recent regulation did is that it revealed Kakao’s and Naver’s valuation burden, which had largely avoided investor doubts so far thanks to hopeful prospects of its future businesses. Another burden is that they are both domestic market-driven companies with presence in sectors that cannot be free from regulations,” said BNK Securities.

Others think the investors are overreacting. While there have been no tangible moves to control Kakao or Naver outside the fintech sector yet, foreign investors sold 600 billion won ($515 million) worth of the two companies' shares on Sept. 8.

“I would say that there are no changes to the two companies’ fundamentals. As we don’t have a new law yet, we should keep calm and see how strong the regulations might be,” said CEO Kim Tae-hong of Growth Hill Asset Management.

Others note that if the government starts to regulate domestic platforms, the market will be taken over by global giants like Google and Amazon. Some noted that platforms like Naver have actually fueled the sales growth of small companies across the country.

“No one would argue that the services like Naver Shopping drove digitalization of small-sized businesses in South Korea. The government and the ruling party must carefully analyze the exact damage that the large platforms are causing to the country’s business sector,” said a financial manager.

Write to Eun-seo Koo, Hyun-woo Lim and Lee In-hyeok at

Daniel Cho edited this article.

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