Author(s): Raghu Gopal
This week, Alibaba's payments arm, Ant Financial, announced an investment of $200 million in Kakao Pay, a South Korean financial services platform that offers services such as bill payment and remittance.
Kakao also runs South Korea's dominant messaging service Kakao Talk. This has 48 million users and is installed on over 95 percent of smartphones in the country. The company has been increasingly entering other local markets through on-demand services including transportation apps Kakao Taxi and Kakao Driver.
Ant Financial is the world's most valuable online finance company and dominates the online payments industry in China with its Alipay platform. However, the company has been facing growing competition from domestic rival WeChat Pay, owned by Tencent.
Ant Financial's investment in South Korea is the latest move in its global expansion plans as it aims to challenge traditional payment leaders such as Visa and MasterCard. Its strategy is to create a global network of financial assets through organic and inorganic growth while it seeks to buy or invest in companies worldwide.
Recently Ant Financial acquired US payments firm MoneyGram for $880 million, and has made investments in Ascend Money, from Thailand, and Mynt, from the Philippines. It also holds equity in Indian company Paytm and Singaporean M-Daq. These are significant strategic moves for Ant Financial, and more investments are expected to come.
The company has come to symbolize the so-called FinTech industry, the tangent point between traditional finance and the disruptive use of new technologies. Ant Financial's investment in South Korea will be particularly interesting to follow given the country's changing market. Local officials have been cautiously deregulating. Now the focus will be on how quickly and effectively Ant Financial's leverage can disrupt local rivals. The investment could also spark momentum for Kakao to expand beyond South Korea, something it needs to do as its main rival Naver has declared intentions to enter Europe and North America.
Ant Financial expects that its brand association in South Korea will drive business from the 8 million annual Chinese visitors who are boosting services such as Airbnb in the country. Ant Financial's parent company, Alibaba, could also gain exposure from this alliance providing it with an opportunity to push its e-commerce services more keenly into South Korea.
For now, Ant Financial is one to follow.