Korean financial services app developer Viva Republic announced last week the close of their Series C funding round, bringing home $48 million in new capital.
Joining the round was a cadre of powerful backers, including big names like Paypal, Bessemer Venture Partners, GoodWater Capital and others that eat and breath fintech solutions for breakfast. Since its founding in 2013 by SeungGun (SG) Lee, Viva Republica has now raised over $77 million in total funding.
Launched in February 2015, the company’s app Toss now claims 6 million users in their native market, providing P2P transfers between friends and family. They have since added services such as loans, a financial dashboard that shows all of the user’s accounts (an important feature as Koreans have 5.4 accounts per person on average), and a credit monitoring service.
“With this funding one of our primary goals is to expand our service offering to continue our growth within the Korean market,” says Lee in his statements to the press. “We’ve done extremely well-attracting millennials to Toss. Now we’re developing services that will appeal to an older audience, for example, a range of financial management services.”
Reaching this point has not been an easy ride. Korea represents an interesting test case for startups, offering both significant opportunities as well as challenges. On the one hand, the population is hungry for technology and are totally mobile ready. As home to the world’s fastest internet speeds, they have the infrastructure to support a wide range of products in the market. Add to this mix a large number of talented engineers and you have many of the building blocks needed for a strong sector.
The downsides fall on factors like stiff regulations that make it hard to restructure entrenched sectors like banking, as well as other barriers to entrepreneurship. Finding decent terms for funding can be difficult since in many cases, the entrepreneur will have to give personal guarantees for the money they are given, basically defeating the idea behind VCs that should allow the startup to work smartly but still free to take chances.
Efforts by the government to put more funding out into the sector through the VCs have not proved successful at this point, with some of the VCs simply holding onto the money themselves without changing their terms, further solidifying the problem.
Viva Republica’s decision to look abroad for new backers should be taken as a sign that they understand that if they will want to continue to scale, they will need investors with a wider viewpoint on the potential of powerful fintech solutions than what is available to them in their home ecosystem.
Tackling regulation obstacles has been a particular focus for the company. When they first launched their product, it was quickly shut down as it was considered illegal. Lee says that “It took us 10 months of lobbying and negotiations to finally convince the regulators to remove the legal barriers. We re-launched immediately and that gave us a key advantage over the competition – we were the drivers of regulatory change and had a service (Toss) ready to go as soon as regulations were relaxed.”
“Our team basically changed the laws and the fintech environment in Korean on our own. It took time and hard work,” he says, adding that, “There was no magical shortcut.”
While this is true, it may have helped that Lee is an advisor to the government’s fintech regulators.
The stagnation in the market has worked to Viva’s advantage. With the banks having failed to produce valuable solutions on their own, it has created room for others to step in and innovate. “The mobile banking experience in Korea, until Toss, has been awful because the financial institutions perceive the roll-out of mobile services as a cost, rather than a sector to invest in,” explains Lee, noting that, “They perceive no revenue opportunity so they want to play safe to avoid potential fraud and other issues.”
This led to a situation where Lee says that it required five passwords and 37 clicks to transfer just $10. With Toss, they have upped the amount that can be transferred to KRW 500,000 (about $435) in only one click.
“While it’s been slow to pick up pace, the whole industry in Korea is starting to realize how important Fintech is for everyone. Even the big institutions are starting to realize it. The Fintech sector in Korea progressed faster last year (2016) than in the last decade, which is amazing. We’re proud to be the leader in this movement towards a better fintech ecosystem in Korea.”
The company also touts their fast growth with minimal marketing, claiming 90% of their adoption by users to have been organic due to the viral nature of their app’s design. This is similar to Germany’s N26 mobile banking that has gained some 300,000 users without a marketing budget, highlighting the public’s hunger for better mobile banking solutions.
Whereas N26 is an actual bank, Viva is very clear in their messaging that they do not intend on replacing the banks, meaning that we should not expect them to seek a banking license anytime soon like local competitor Kakao Pay, which has chosen more of a B2B path for partnerships with merchants. For now, Viva seems pretty intent on working as a conduit for the banks, having signed deals with 18 out of 19 major banks in the country.
If we look elsewhere in the mobile payments and banking space, we see a huge growth of apps aimed at engaging customers where they are most comfortable: on their phones. Some like Pepper from Israel’s Bank Leumi offer a full range of banking services, while their competitor Bank Hapoalim has come out with a more restricted P2P service on their Bits app. Then there are the independent services like Venmo, PayPal, PayBox that do P2P that have been unable to enter the Korean market due to regulation. That’s not to mention companies like Mint, Credit Karma, Stripe, and Wealthfront that have also been barred from entry due to regulation.
Moving forward, the Toss team plans on rolling out solutions for overseas transfers, loan brokerage, and micro insurance, essentially rounding out their portfolio of financial services.
The article This fintech startup is disrupting Korea’s banking sector, rewriting regulation first appeared on Geektime.