Shares of Korea's big online platform operators Kakao and
Naver have been falling since regulators last week announced plans to look closely
at their business practices... as they expand aggressively into other sectors.
They're accused of abusing their dominant positions in the market,
hurting consumers and their contractors. For more on this, we have our Min Suk-hyen
joining us in the studio today. Welcome back.
Thank you, Devin.
So, Kakao and Naver shares extended their losing streak today. Shares of both companies
down sharply the past week... since the Fair Trade Commission made this announcement.
Well like you said, shares in South Korea's platform giants
Kakao and Naver have been dipping for days. The stock price of Kakao fell by 19-point-5
percent...while Naver plunged 9-point-5 percent over the past five trading days.
In terms of market cap, the two have lost a total of about 20 billion U.S. dollars
over the last week... as foreign investors and institutions offloaded their shares.
So what's the issue? These companies and others... have obviously attracted
the attention of the authorities which doesn't bode well for their
businesses, which have grown so fast in the past decade or so.
Well, one major factor is the government's latest move to
regulate the sales of financial products on online platforms.
Last Tuesday, the country's financial regulators said that the recommendations
of financial products by fintech platforms like... Kakao Pay and Naver Financial... are
against the Financial Consumer Protection Act, which took effect in March, this year.
Under the new law, recommending financial products, such as funds and insurance plans,...on
online platforms is considered as an act of intermediation, and not an act of advertisement.
And so, fintech firms have been asked to make appropriate revisions to their online platforms.
Starting September 25th, Kakao Pay, Naver Financial, and other fintech platforms
will not be allowed to compare and recommend financial products to their users... unless
they register with the regulators and receive a license or permission to carry out those services.
So there's regulatory scrutiny, and the new law to protect financial consumers.
But lawmakers are looking at taking further action... to deal
with what they see as the harm being done to small businesses and contractors, too.
That's right, Devin. Several lawmakers have vowed to take action against online
platform giants due to their growing market dominance and rapid business expansion.
Kakao for example has expanded its business portfolio and currently has 118 affiliates
under its wing, a significant rise from the 45 it had six years ago.
Policymakers, at this point, feel it's necessary to protect small businesses
as they believe small, family-owned stores or retail shops listed as sellers on the
platforms have not been properly protected. There's actually a few pending bills at the
National Assembly aimed at preventing unfair business practices by online platform operators,
which if passed will lead to tighter regulations on big tech.
This pressure has led Kakao to announce a new fund for social responsibility... that'll
actually be used to help small businesses. It's also going to get out of some of the
businesses where ordinary people are trying to make a living.
Yes, that's right. Following a meeting with major affiliates on Tuesday,
Kakao has decided to set up a fund, worth 250 million U.S. dollars, to support small businesses
on its platform over the next five years. The company will also turn it's investment wing K
Cube Holdings into a social enterprise to fund key programs, such as education and climate change.
Also, Kakao Mobility, will stop some of its services, such as deliveries of flowers and
snacks... and Kakao Taxi will end its service that lets users pay an extra fee to hail a cab faster.
Kakao Chairman Kim Beom-su said the company will seek ways to change
and develop a more cooperative business model with its partners,
moving away from its previous growth model. The announcement of this so called
"co-existence plan" is seen as a move to appease regulators and regain investor confidence.
"For Kakao to continue its business in the future,
it should focus on its social responsibility to build a good corporate image.
In this sense, the "co-existence" plan might have been announced after the company
considered its long-term business growth and looked to clear its negative publicity."
It also comes as Kakao Pay, the financial arm of Kakao Group, is preparing for an IPO
before the end of this year.
So shares of Kakao and Naver, down quite a bit as we discussed.
It does seem like the pressure on these companies could still
intensify. So what are you hearing about the longer-term impact on their stock price?
Well, the shares of the nation's top two platform
operators are expected to gradually recover over time. Take a listen
"Since Kakao has taken a step back following its Tuesday announcement to support small businesses,
its shares will enter a calm phase. Naver, which is facing the same regulations as Kakao,
will also see its shares recover."
While there is the possibility that shares might drop again... once some of their services face new
regulations… experts remain optimistic about the long-term growth prospects for Naver and Kakao.
This is a big move by Korea, which has also recently been taking on Apple and Google
as well... with their app stores and payment systems. That could inspire similar moves in other
countries. So what's happening on this front elsewhere in the world?
Well yes. Countries around the world are moving to limit the market power of tech giants.
In June, the U.S. introduced five anti-trust bills designed to rein in big tech companies,
such as Google, Amazon, Facebook, and Apple. Meanwhile, China has also set tougher
digital finance and anti-monopoly guidelines. In April, the Chinese government fined online
platform Alibaba a record 2-point-8 billion U.S. dollars over anti-competitive practices.
It does seem that numerous governments see a problem with the dominance of these companies.
As you say, they're taking action. So we look forward to hearing from you about those
developments as they happen. Sukhyen, thanks for your
thorough reporting on this issue today.
Thank you for having me.