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PayPal throws weight behind South Korean fintech pioneer

US payments company joins Silicon Valley investors in Viva Republica

Toss founder and CEO Lee Seung-gun says there are possibilities of integration with PayPal's other investments, including Braintree, Xoom and Venmo. (Courtesy of Viva Republica)

SEOUL -- PayPal has joined a 55 billion won ($48 million) investment by Silicon Valley venture capital firms in South Korean fintech startup Viva Republica, the world's fastest-growing payments company by transaction volume. The deal marks the U.S. payment company's first fintech investment in the East Asian country, home to a $1 trillion consumer loan industry and one of the world's most active mobile banking markets.

The deal, announced Thursday in the U.S., was led by Goodwater Capital, a $400 million company that funded South Korean startups Kakao and Coupang. PayPal Holdings, Bessemer Venture Partners, Altos Ventures and Partech Ventures participated, bringing the startup's total funding to 87.5 billion won after three rounds.

The local fintech industry is off to a strong year as the announcement comes just days after Alipay, an affiliate of Chinese ecommerce company Alibaba Group Holding, invested $200 million in e-commerce payments solutions provider Kakao Pay.

Over 30% of South Korea's 20-something smartphone users have the Toss app. (Courtesy of Elaine Ramirez)

Viva Republica's flagship peer-to-peer payments app Toss claims 6 million users in South Korea and $3 billion in transactions since its 2015 launch. That makes it the world's fastest-growing payments platform of scale, topping popular U.S. products Venmo, PayPal and Square, Eric Kim of Goodwater Capital told Nikkei Asian Review.

"They've hit a clear inflexion point in their growth and really established themselves ... in fintech," Kim said. "That says a lot for a Korean company and it's a great testament for the growth of the region."

As the receiver does not need the app to accept bank transfers, the startup gained momentum because it did not have to build a network of users, said Han Kim, Seoul-based partner at Altos Ventures, which has backed all of Viva Republica's investments since it started its $1 million seed fund.

That has made Toss more popular than most mobile banking apps in South Korea, with users making an average 6.7 transfers a month on the app, nearly triple the industry average.

"It's probably the first financial app really focused on making the user experience as convenient as possible," Kim said. "That's how they grab everyone's attention and at the same time changed the habit of how people interact with financial applications."

That rapid growth is one of the key reasons PayPal invested, Kim said. But local competition is set to heat up. Top messenger maker Kakao on Thursday launched a similar streamlined function to send direct bank transfers through its KakaoTalk app, which is installed on over 99% of smartphones in South Korea.


The Toss deal links Viva Republica with PayPal, whose Korean-language platform, launched in early 2015, has failed to gain traction especially with businesses due to complications with tax code registration. It has also partnered with local Hana Bank for a remittance solution. While no immediate synergies are announced, founder and CEO Lee Seung-gun predicts there will be a range of possibilities around integrating the respective user bases of Toss and PayPal's other investments, including payments solutions providers Braintree, Xoom and Venmo.

But Toss has been operating at a loss, offering free bank transfers to gain traction and subsidizing up to 500 won per transaction between different banks. It now limits free transfers to five per month. With the investment, the startup hopes to break even, begin monetizing and expand its active user base by 500-700%.

Despite South Korea's top internet speeds, smartphone penetration and the world's highest level of banking activity per capita, its online banking infrastructure is outdated and cumbersome. Many websites are still dependent on Microsoft's Internet Explorer browser and a process that includes multiple verification steps such as digital certificate login, password authentication and the installation of various add-ons.

Lee said the local mobile banking experience was awful because existing financial institutions favor security over convenience and view mobile services as costly rather than as growth opportunities.

Lee launched the startup in 2013 to solve that problem. It began with a then-illegal concept that was shut down by regulators. But after persistent lobbying and media promotion, Lee successfully pushed for deregulation, including allowing venture capital firms to invest in fintech. He is co-founder and chairman of the Korea Fintech Association.

In 2015, he launched Toss, which acts as a middleman between the buyer and sender to facilitate the bank process, turning a dozen steps into just three. Senders simply submit the receiving account number, amount and password, and Toss handles the actual transaction.

The more favorable fintech environment is also warming up for global players like Alipay which marked its entry into South Korea with its investment in Kakao Pay.

With the user data it has amassed, the company aims to expand its service from peer-to-peer payments into a platform business featuring a full set of asset management products such as quick loans, credit scores and a financial dashboard. It has partnered with credit card companies, a savings bank and most of South Korea's commercial banks to offer immediate loans. Some elements of the services are being piloted on a small part of the user base.

"Right now, we want to make cross-engagement among our financial services. Users might want to do money transfer, but by doing that in our app, they might find other services that are also valuable," Lee said.

Toss is already a hit with the mobile-savvy 20-somethings, having won over 30% of the country's millennial smartphone users. Now it hopes to draw in users in their 40s with new financial products such as micro loans and credit scores.

Viva Republica expects to handle $1 billion in monthly transactions soon, while aiming to reach 7 million monthly active users by year-end. It aims to strengthen local offerings in one single app before considering a global strategy. When the startup finally does explore beyond its home market, it is eyeing Southeast Asian countries with old banking systems similar to South Korea's in the 1980s and 1990s but with a high mobile penetration.

"Korean fintech has a good landscape ... but we need to evolve much further in terms of deregulation and industry size," he said. "We are going to see a bunch of unicorn companies within fintech in 2-3 years. Right now it's just the starting point."

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