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Kakao under pressure to revamp businesses amid growing scrutiny

All News 10:46 September 14, 2021

By Chae Yun-hwan

SEOUL, Sept. 14 (Yonhap) -- South Korean internet giant Kakao Corp. faces increasing scrutiny from regulators and politicians over its online platform empire that could prompt a rethink of its rapid business expansion in recent years.

Last week, financial regulators cautioned fintech companies, including Kakao subsidiary Kakao Pay, to follow new consumer protection rules and receive licenses for some of its services by Sept. 24 or risk shutting down.

The warning triggered a massive investor sell-off and prompted Kakao Pay to suspend some of its services. The company's shares closed at 124,500 won Monday, down 20 percent from a week ago, wiping 13.8 trillion won (US$11.8 billion) off Kakao's market cap.

But investor concerns over Kakao have continued to mount as prominent politicians and top regulators have ramped up rhetoric against the online giant and its recent aggressive expansion into wide-ranging businesses, from banking, taxi-hailing and education to flower delivery services.

Last week, Democratic Party leader Song Young-gil issued a stern warning against the company, saying that Kakao should not take the path of past conglomerates of only seeking profit and ignoring fairness.

In light of growing scrutiny, Kakao is reportedly preparing to announce a plan sometime this week that could include a withdrawal of some of its businesses that compete with mom-and-pop stores.

Kakao under pressure to revamp businesses amid growing scrutiny - 1

At the core of the online platform giant's rapid expansion is its dominant messaging service KakaoTalk, which boasts around 46.6 million local users, accounting for around 90 percent of the country's population.

On the back of its strong online user base, Kakao has aggressively entered new businesses, heralding a shift to online services in South Korea, and becoming one of the country's top five most valuable companies before its recent tumble.

But politicians and regulators alike are now on guard against Kakao's far-reaching influence amid growing accusations of unfair business practices.

The Korea Fair Trade Commission is currently investigating alleged unjust business practices by Kakao Mobility Corp., the country's leading taxi-hailing firm, after allegations that the company deliberately gives priority to taxis affiliated with the firm in receiving calls when a customer hails a taxi with its application.

Kakao's mobility unit has also faced fierce protests from taxi drivers for attempting to levy some service fees in its taxi-hailing service, which taxi drivers argue had previously been offered for free.

The country's top telecommunications regulator Han Sang-hyuk said in parliament last week that he is looking into the controversy and shared the concerns of taxi drivers.

Taxis affiliated with Kakao Mobility's taxi-hailing service operate outside Seoul Station in central Seoul in this file photo taken on April 8, 2021. (Yonhap)

Taxis affiliated with Kakao Mobility's taxi-hailing service operate outside Seoul Station in central Seoul in this file photo taken on April 8, 2021. (Yonhap)

Joh Sung-wook, the head of the KFTC, voiced broader concerns last Friday about the influence of internet giants, saying that while platforms have given more choice to consumers, there has also been an increase in consumer harm.

The KFTC is also taking aim at Kakao founder Kim Beom-su, reportedly investigating Kakao for allegedly omitting or fabricating submitted documents on Kim's wholly owned Kcubeholdings, which owns a 10.59 percent stake in the company.

Lawmakers have also taken action, with about 10 different versions of a bill targeting domestic online platform giants currently under parliamentary review since last year.

In a parliamentary speech last week, ruling party floor leader Rep. Yun Ho-jung warned of looming regulations.

"We will definitely rectify the uneven playing field between platform operators and businesses running on them," he said.

Legislative movement is expected to pick up, considering growing concerns from regulators and politicians, as well as the ruling Democratic Party's super-majority status.

The Democratic Party has 170 seats in the 299-member parliament, meaning that there is no obstacle in passing a bill.

Driven by the ruling party, the National Assembly passed a controversial bill late last month that curbs the influence of global tech giants Apple Inc. and Google in their app store operations.

The new law, the first of its kind globally, limits app store operators from forcing certain payment systems on software developers and goes into effect Tuesday.


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