South Korea’s digital payment market has been busy lately as companies go on a deal spree since LG Uplus’ sale of its payment gateway (PG) business last year. Recently, NICE Group has acquired value-added network (VAN) service provider JTNet.
The country’s NICE Group has recently acquired a 100 percent stake in JTNet via its subsidiary KIS Information & Communication for around 47 billion won, according to industry sources on March 26. Two parties have signed a stock purchase agreement at the beginning of March and the deal has closed lately. South Korea’s private equity firm UTC Investment which owned a 70 percent stake in JTNet has exited its investment within five months or so.
The country’s digital payment market has drawn strong interest from investors due to a series of M&A deals. Starting with LG Uplus’ sale of its PG business in April 2019, an M&A spree has continued in the industry. Some companies like KSNet have already changed hands.
Investment banking industry sources said that investors’ interest in the payment industry including VAN and PG companies is based on the rapid growth of the e-commerce market. According to the Bank of Korea (BOK), South Koreans’ daily credit card spending on online shopping soared to 255.9 billion won in 2019 from 141.2 billion won in 2016.
PG service providers earn commission each time a payment is facilitated by their app between a retailer and a card firm or bank. VAN service providers also earn commission by lending their payment networks to PG service providers. Those service providers are expected to benefit from growing online payments amid consumers’ shift from offline to online consumption.
Payment service providers’ ability to generate cash is also viewed as one of the strengths. For example, LG Uplus’ PG business has generated cash worth around 30 billion won a year even without major clients like the country’s internet giant Naver and KSNET has recorded EBITDA of 370 won a year.
Viva Republica, the operator of peer-to-peer money transfer app Toss, is planning to launch Toss Payments in June. Viva Republica has acquired LG Uplus’ PG business unit for 365 billion won to improve its profitability, which has constantly been an issue among investors.
“The attractiveness of payment service providers is ample liquidity and ability to generate cash through earnings commission,” said an industry insider, adding, “Fintech firms which have low profitability have attempted to operate payment services as well to improve their profitability.” (By Choi Ik-hwan)