Korea's big tech firms face new regulations over growing market dominance and rapid business expansion
Updated: 2021-09-15 17:04:22 KST
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.
So Suk-hyen, shares of Kakao and Naver were down sharply the past week. Tell us more about this.
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 20.5 percentwhile Naver plunged 9.9 percent over the past six 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? What has triggered investors to sell the stocks?
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 a brokerage activity, 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 but I hear lawmakers are looking at taking further action. Could you elaborate on this?
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, and even scrap some of its servicesWhat do we know about this?
Well, Following a meeting with major affiliates on Tuesday, Kakao 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.
It does seem like the pressure on Kakao and Naver could intensify. What are you hearing about the long-term impact on their stock prices?
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 regulating their proprietary payment systems.
Are other countries making similar moves to curb tech giants monopolistic grip?
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 2.8 billion U.S. dollars over anti-competitive practices.
It does seem that numerous governments see a problem with the dominance of these companies as well.
Sukhyen, thanks for your thorough reporting on this issue today.