KakaoBank and KakaoPay have each posted record results, as Kakao’s financial business growth drivers broaden beyond net interest margin and simple payments to corporate finance, investment, insurance and advertising.

KakaoBank is expanding its loan portfolio beyond household lending to sole proprietors, small and mid-sized companies and capital finance. KakaoPay is changing its revenue structure by linking payment users and data to financial services such as securities and insurance. In September, KakaoPay Securities’ stock-related services will be added to the KakaoBank app, expanding points of contact between the two companies’ businesses.

KakaoBank’s net profit for the first half rose 24.4 percent from a year earlier to 328 billion won, the highest for a half-year period, the financial sector said on Tuesday. Operating revenue for the first half rose 5.5 percent to 1.65 trillion won. Second-quarter operating profit and net profit were 194 billion won and 141 billion won, up 14 percent and 11.5 percent, respectively, from a year earlier.

KakaoPay also set a quarterly record in the second quarter, with consolidated revenue of 335 billion won, operating profit of 58.6 billion won and net profit of 49.6 billion won. That was up 40.6 percent, 528.2 percent and 251.3 percent, respectively, from a year earlier.

The change in the profit structure is drawing more attention than the size of the results. KakaoBank’s non-interest income in the first half rose 4.8 percent to 589.5 billion won, accounting for 36 percent of total operating revenue. Fee and platform income rose 10.5 percent to 169.6 billion won.

KakaoPay’s financial services revenue in the second quarter rose 75 percent to 175.2 billion won, accounting for 52 percent of total revenue. It was the first time the share of financial services revenue exceeded half. Payment services revenue rose 13 percent to 141.4 billion won, and platform services revenue rose 44 percent to 18.5 billion won.

Corporate finance and platform expansion

In KakaoBank’s banking business, growth in loans to sole proprietors stood out. Outstanding loans at the end of the second quarter were 48.2 trillion won, up 518 billion won from the previous quarter. The increase in household loans was limited to 234 billion won, but outstanding loans to sole proprietors rose 284 billion won to 3.69 trillion won. Loans to sole proprietors accounted for 48 percent of net loan growth in the first half.

Outstanding loans to sole proprietors rose 45 percent from a year earlier. The share of guaranteed and secured loans expanded to 69.1 percent. It is a strategy to manage growth and soundness together by increasing guaranteed and secured products rather than unsecured credit loans.

KakaoBank will launch a refinancing service for sole proprietors’ real estate-secured loans in the fourth quarter. From 2027, it will roll out joint loans with Busan Bank and step up its entry into the small and mid-sized corporate market. It then plans to broaden its product lineup to include real estate-secured loans for corporates and credit and guarantee-backed loans.

It will also broaden its deposit portfolio from household won deposits to sole proprietors, foreign currency, and corporate and institutional deposits. KakaoBank said that, in the overall deposit market worth 2,279 trillion won, it has so far focused mainly on households and sole proprietors, and will gradually target corporate, institutional and foreign-currency deposit markets over the medium to long term. In June, it launched a foreign-currency account that allows customers to hold nine currencies with no exchange fees and remit foreign currency to a stock account.

KakaoBank also set a goal of lifting its overall loan growth rate this year to a level similar to last year. Loan growth in the first half was about 3 percent, but it plans to expand growth in the second half through a loan for apartment sale balance payments in September and a refinancing product for sole proprietors’ real estate-secured loans in the fourth quarter.

Alongside loan expansion, its platform business saw growth in loan comparison, advertising and investment services. Loans executed by partner financial companies through its loan comparison service rose 12 percent from a year earlier to 1.56 trillion won in the second quarter. Advertising revenue rose 81 percent, and advertising’s share of platform revenue expanded to 31 percent this year from 19 percent last year.

Combined balances in funds and its "MMF Box" rose to 1.8 trillion won at the end of the second quarter, and monthly active users of investment services rose 3.2 times since the launch of its "investment tab". KakaoBank plans to launch an auto finance comparison service in September and increase platform revenue by expanding payment and investment services.

KakaoPay’s financial push

KakaoPay said its securities and insurance subsidiaries drove performance. Total transaction volume in the second quarter rose 20 percent from a year earlier to 54.2 trillion won. Payment transaction volume rose 25 percent, while online, offline and overseas payments rose 16 percent, 58 percent and 21 percent, respectively.

KakaoPay Securities’ second-quarter revenue was 121.9 billion won. Cumulative operating profit for the first half was 63.1 billion won, surpassing last year’s full-year result. Total assets under custody rose 279 percent from a year earlier, and stock and pension assets rose 391 percent. It was driven by a net inflow of 4.8 trillion won in customer funds into domestic and overseas stock markets.

KakaoPay Insurance’s second-quarter revenue was 25.6 billion won, more than doubling from a year earlier. Written premiums rose 66 percent, and recurring premium income rose 134 percent. As recurring-payment products such as mobile phone insurance and pet insurance expanded, its profit base also broadened.

In its loan brokerage business, it is expanding "KakaoPay Score", an alternative credit evaluation model. As of the second quarter, it had contracts with 12 financial companies and plans to increase that to more than 20 by the end of the year.

A direct business link between KakaoBank and KakaoPay is also beginning. KakaoBank will connect KakaoPay Securities’ stock-related services in the form of a WTS to the "investment tab" in its app in September. It will display services related to domestic and overseas stocks and exchange-traded funds in the form of advertisements.

KakaoBank will broaden its investment services, which had focused on funds and money market funds, to stocks. KakaoPay Securities can secure a new point of contact with KakaoBank’s 27.63 million customers.

Rates and costs are variables

The interest rate environment is expected to work in favor of KakaoBank’s short-term profitability.

Net interest margin in the second quarter rose 0.13 percentage points from the previous quarter to 2.13 percent. As market rates rose and credit loan handling expanded, asset yield increased 0.11 percentage points, while the cost of liabilities fell 0.02 percentage points as savings products were canceled and deposits declined.

KakaoBank estimated that if the policy rate rises 0.25 percentage points, net interest margin would increase by about 0.03 percentage points over the next year. Variable-rate loans account for about 73 percent of total loans. The company said it expects net interest margin improvement to continue in the second half, considering the July policy rate hike and the possibility of additional hikes within the year.

Rising costs are a burden. Second-quarter selling, general and administrative expenses were 153.9 billion won, up 17.5 percent from a year earlier. As data center operations ramped up, depreciation rose 50.4 percent and IT operating expenses rose 35.4 percent.

KakaoBank expects depreciation and IT operating expenses to rise more than 40 percent this year from last year, and total SG&A to increase by around 20 percent excluding one-off factors. It expects the cost-to-income ratio to rise slightly this year and then stabilize downward from 2027.

KakaoPay could also become more sensitive to capital market trading volume, inflows of investment funds and new insurance contracts as its securities and insurance businesses grow. A task is to convert payment users into financial product customers while also reducing volatility depending on market conditions.

KakaoBank is expanding into sole proprietor and corporate finance and capital finance, while KakaoPay is broadening into securities and insurance. Rising rates could work in favor of KakaoBank’s profitability, but rising IT costs, the soundness of new corporate loans and volatility in KakaoPay’s financial business results are variables that must be managed together.

Shin Won-geun (신원근), CEO of KakaoPay, said on a conference call, "Data-based tailored services and improved efficiency in managing subsidiaries led to profitability improvement." He added, "We will expand financial services based on our proprietary data and platform capabilities."

Kwon Tae-hoon (권태훈), CFO of KakaoBank, also said on a conference call, "KakaoBank is gradually expanding its initial portfolio, which was concentrated on household won deposits, into areas such as corporate and foreign currency." He added, "Over the medium to long term, we will gradually target the remaining half of the huge market, including corporate and institutional deposit funds."