"Rivals' distribution of offline terminals is a strategy that entails high upfront capital expenditure. There is a risk that, instead of collaborating with incumbent players such as value-added network (VAN) companies and point-of-sale (POS) terminal firms, it will create a competitive standoff."Park Jeong-ho, Kakao Pay head of services
Kakao Pay, which has thrown down the gauntlet in the offline payments market, said it will not use payment terminals. That contrasts with rivals Naver Pay and Toss, which have entered a race to deploy terminals.
Kakao Pay clearly explained why it did not choose terminals. As head Jeong-ho Park explained on the earnings conference call on the 4th, terminals are centered on small-business stores, limiting the push into large franchises, and it is hard to secure sufficient expected revenue with payment fees alone.
There could also be problems with VAN companies that already supply terminals. The controversy surrounding Toss, which rapidly expanded its terminals, is emblematic. Toss's terminal subsidiary Toss Place received an official letter in July from the Korea Credit Card Terminal Association, a federation of VAN agencies, asking it to stop aggressive sales activities, and it also fought an injunction battle over terminals with SCS Pro. Last week, it was also sued by Korea Information & Communications Co. (KICC) for alleged infringement of payment infrastructure patents.
The core of Kakao Pay's offline strategy without terminals is the network. While competitors focus on signing up terminal merchants, Kakao Pay is adding partners. Kakao Pay has already linked Samsung Pay, Zero Pay, and local currency prepaid cards to its own application (app) and has formed a QR Order Alliance with payment infrastructure companies.
Alliance partners lay down Kakao Friends QR stickers and guide posters in stores, and Kakao Pay supports digital marketing for these stores. Kakao Pay says small-business owners can cut expense because payments are possible with only a QR code sticker, without needing to buy a terminal or tablet. The plan is to push through with a partner network rather than steering users to terminal payments.
Based on this, Kakao Pay aims to create a domestic artificial intelligence (AI) payment standard, as with the OpenAI case. Last month, OpenAI unveiled the "Agent Commerce Protocol" (ACP), which lets users pay for items searched in ChatGPT directly within the app. After launching the Generative AI "Pay AI" in June, Kakao Pay rolled out services such as finding user-tailored insurance and finding payment benefits. In the middle of next year, it plans linked services with "ChatGPT for KakaoTalk" and "Kanana in KakaoTalk," AI services within KakaoTalk.
Kakao Pay surpassed 5 million monthly offline payment users in May. Among Fintech simple-payment providers, Kakao Pay is the first to exceed 5 million payment users excluding online. Based on this, it set a goal to increase monthly offline payers to 10 million by 2027. However, in terms of transaction amount, it trails other Fintech firms such as Naver Pay.
Another limitation is that, because it does not use terminals, it is hard to capture middle-aged and older consumers who use physical cards. Paying by QR or barcode is relatively more common among younger users with smaller transaction amounts. A Kakao Pay official said, "As a platform company, we plan to focus on increasing the number of offline payers rather than scaling the transaction amount."