Deal focus: Korean start-up looks beyond fintech logjam

Regulation spells opportunity for start-ups targeting South Korea's e-commerce payments market. Laws preventing merchants from retaining credit card details have soured customer experiences and hence opened the door for a large influx of apps aiming to offer PayPal-style solutions.

The companies offering these services have also been attracted to the sheer size of Korea's financial services market. The country ranks first globally in both per capital credit card use and mobile penetration rate. Koreans also use an average of 5.4 credit cards each.

Viva Republica, which has raised a $23.7 million Series B funding round led by Goodwater Capital and Qualcomm Ventures, is one of numerous start-ups looking to address the e-commerce bottleneck.

"In spite of this huge market, there are not any really proper financial mobile services due to the tough regulations and the leveraged banking system," says S.G. Lee, Viva Republica's CEO. "Other countries have a lot of financial services from non-financial institutions, but in Korea, there are only institutions like the banks. But for the banks, this kind of mobile service is not a source of revenue - it's a cost."

Goodwater and Qualcomm were introduced to Viva through the company's existing investor Altos Ventures, which also participated in the round alongside KTB Network. Altos and KTB backed the Viva's $4.5 million Series A last year after a $1 million seed round in 2014.

The company's flagship product is Toss, a mobile payments app that recently surpassed $1 billion in cumulative transactions processed. Viva claims Toss is the fastest-growing app of its kind globally - expanding four times faster than Venmo, PayPal's seemingly omnipresent money transfer tool.

The problem for Toss, however, is rooted in the reason PayPal has barely attempted to crack the Korean market: high fragmentation. Although the e-commerce bottleneck remains, it has attracted an unsavory level of competition to the payments sector, and the fees that app providers can feasibly charge are getting smaller every year. Lee describes a market in which even a contract with the country's biggest e-commerce company will only generate revenues in the disappointing range of $50,000 a month.

The Series B investment, therefore, is slated to expand the company out of the payments area of financial services, and even out of Korea altogether. The capital will channeled into two new products focused on the relatively underserved areas of mobile loan services and monitoring personal account details. Viva will also explore overseas M&A opportunities, with Southeast Asia expected to be at the top of the targeting list.

"We see Toss-like services being launched every day in Southeast Asia, so it's a big opportunity," Lee says. "The population is huge and mobile penetration is just above 70%. People in Indonesia and Malaysia really love their mobiles but a lot pf people are still underbanked, so we see room for innovation in banking and other financial service in that market."

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• Topics
• North Asia
• Early-stage
• Technology
• Financials
• South Korea
• Venture
• Qualcomm Ventures
• Altos Ventures