Fintech Startups

South Korea – SG Lee, Founder & CEO of Viva Republica , Speaks on $48 million funding for TOSS.

Viva Republica is a Korean fintech company founded in 2013 by SeungGun (SG) Lee, a former dentist turned fintech entrepreneur. He was personally frustrated with how archaic web and mobile banking was in Korea, and decided to change it himself.

“My vision is to offer a seamless user experience across all facets of consumer finance within one ultra-simple mobile application” 

Viva Republica has a mission of providing its users with an all-in-one consumer financial services app. In 2015 the company launched Toss, now one of the world’s fastest growing financial apps with over USD $3 billion in transaction volume within two years. As the market leader for P2P money transfer in Korea with over six million downloads, Toss is introducing consumer financial services that have never been available on a mobile app. Complementing P2P money transfer, Viva Republica recently launched three additional financial services for mobile (a financial dashboard, micro loans and a credit score service). A number of other services are currently in development. Based in Seoul, Viva Republica is backed by a number of reputable global investors such as Goodwater Capital, PayPal, Bessemer Venture Partners and Altos Ventures. 

What are the key milestones you intend to achieve through this round of funding?

“With this funding one of our primary goals is to expand our service offering to continue our growth within the Korean market. 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.”

“There’s a tendency in Korea for vertical markets to consolidate to one or two top players. To dominate our market position we will be rapidly developing and rolling out complimentary financial services for mobile that have been proven in other markets. We’ve already begun that process. Using this strategy we’re quickly working towards offering a seamless user experience across all facets of consumer finance within one ultra-simple mobile application.”

“Another big achievement we’re excited about with this funding round is our fresh relationship with PayPal, often cited as the world’s first fintech company. They are the number one player in online payments globally. Their participation shows that they recognize our potential. With their help, we can advance to the next level, globally and at speed.”

“Beyond the opportunities for growth with PayPal’s support, we’re expecting increased interest from other companies around the world with whom we can partner. PayPal’s interest is testament to what we’ve achieved so far and for what we can achieve in the future.”

“At the moment Toss is focusing on customer acquisition and money transfer. But we are moving to a full-service finance app including micro loans, credit score monitoring and management, cross border money transfer and other areas.”

How have you acquired so many users in such a short time period?

“Despite Korea being a large market and despite its strong technology infrastructure, strict regulations and a traditional banking system have led to financial apps with inefficient and cumbersome user experience. Toss is the first company to adequately address this problem. We’ve demonstrated that we can streamline financial services on mobile and deliver a fantastic user experience. That’s been critical to our rapid growth.”

“What is impressive about our growth is that 90% is derived from word of mouth. We also have a great team, which helps us overcome resource limitations faced by big companies.”

How do you view the impact of Ant Financial’s partnership with Kakao Pay on Toss?

“Honestly, we don’t see Ant Financial’s partnership with Kakao as a major threat. First, our user growth has been strong and steady since Kakao Pay launched. Also, they’re focusing on mobile payments, rather than mobile money transfer.”

“KakaoPay is primarily a B2B play, focusing on acquiring merchants. That strategy requires an enormous marketing budget that doesn’t leave much in terms of margins. Toss is a B2C offering, focusing on providing a range of financial services to its users.”

“As we roll out additional services, our users are beginning to view us as a platform for all their financial needs. We are achieving this through partnerships with various financial institutions, including 18 of Korea’s 19 retail banks. Kakao has already registered as a bank, which makes it more difficult for them to sign deals with rival financial institutions. Essentially, they compete with the banks, whereas we complement them.”

Why is Korea a perfect market for a fintech company like TOSS?

“One misconception about Korea is that the market is small because there’s just 50 million people living here. However, Korea is the 11th largest global economy and ranks 1st in mobile penetration / adoption. Korea’s financial market is even more astonishing – it’s 2nd in terms of mobile banking transactions and 1st for the number of monthly transactions per credit card holder (130 transactions/month compared to just 70 in the USA).”

“Prior to Toss, mobile users were forced to use apps developed by the banks. These required multiple steps to complete basic transactions and were dependent on outdated infrastructure which wasn’t mobile friendly. Toss alleviates a major pain point in the user experience and is rapidly and radically changing consumers’ perceptions of mobile banking. We’re delivering an intuitive and seamless experience, like how it should be.”

How frustrating is the online or mobile banking experience in Korea? Please describe what the experience looks like without Toss?

“Before Toss, users required five passwords and around 37 clicks to transfer $10. With Toss users need just 1 password and three steps to transfer up to KRW 500,000. The process is quick and simple. Our goal is to make mobile finance as frictionless as possible for the user.”

“Because the banks haven’t placed a priority on innovation, they are simply not good at developing new services. They haven’t placed a priority on hiring the technical talent required to develop world class services – we have! Even in Korea where internet speeds are the best in the world online banking is sluggish, with screens taking several seconds to load.”

“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. They perceive no revenue opportunity so they want to play safe to avoid potential fraud and other issues.”

“In Korea, if banks follow established processes as set out by the government, they are absolved of liability in fraud cases. Rolling out services that don’t follow standard process exposes them to risk. They see sticking with the status quo as a safer bet than innovating.”

What does the Korean fintech ecosystem look like now?

“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.”

“Of course there is still a lot of work to do and Toss is leading the way. We need to push even more to keep changing regulations. Korea is still at an early stage and big changes are happening, not annually, but every 6 months. The country has a lot to offer to investors interested in fintech and we strongly believe that Korea can become a fintech leader.”

Why did Fintech take so long to take hold in Korea, compared to the US where PayPal started in 1998?

“Korea had services similar to PayPal 20 years ago, but at the time they were too expensive, failed to scale, were unable to avoid fraud and offered a terrible user experience. Toss is the first fintech company that’s been able to answer these four critical points and create a frictionless and secure finance experience for users.”

Why has this problem been unsolved so far? And how have you been able to solve it now? Why is now a good time to be in fintech and to invest?

“Timing has been critical for us. Actually, when we first launched Toss in Korea it was illegal and was quickly shut down by the regulators. But we didn’t give up! 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.”

“We were the first movers and our relationship with regulators meant that we were ahead of the competition. Now we’re leaving them in the dust.”

“Changing the regulations took time, it has been a long process. At first we used the media to help us, asking journalists to help us change people’s minds about fintech and show how useful it could be for them. Once we had the media’s backing and strong support from the public we were able to convince the regulators and politicians.”

“Our team basically changed the laws and the fintech environment in Korean on our own. It took time and hard work. There was no magical shortcut.”

“Now that the regulators have shifted their views to be more pro-fintech, we’re seeing increasingly progressive moves from the regulators. There are lots of promising steps forward, enabling a larger range of fintech services to be rolled out – these changes are picking up pace. We see a time in the not too distant future when new fintech companies will be able to innovate without the regulatory constraints we experienced. That’s exciting for us and the whole the industry.”

Is it possible for Toss to expand outside of Korea?

“Yes. Southeast Asia will likely be our first exploration beyond our home market, Korea. Many countries in Southeast Asia have old banking systems, similar to Korea’s in the 1980s and 1990s. But mobile penetration in the region is very high – in many cases already more than 90%. That’s the perfect condition for us to introduce an easy-to-use mobile app like Toss. We see a lot of opportunities in the region in the future.”

How did you sign deals with banks as a startup? How did you get so many customers?

“I was personally convinced that Toss was a product that customers needed and would appreciate. With this powerful conviction I personally kept pushing until someone said yes. We started with small banks and then, little by little, we moved to bigger ones. Today we are partnered with 18 of the 19 major banks in Korea. We have access to 98% of Korea’s banking customers through these critical relationships with the banks. Kakao Pay, which is a bank itself, has is so far only able to access 45% of the market.”

“Before I started Toss, I was a dentist. Amazingly this was very helpful to me when talking to banks and investors. Let me explain. Dentists in Korea enjoy a very comfortable and well-compensated career. We can make lots of money with little risk. The people I was making deals with could see that I didn’t create Toss out of greed, but because I saw a real opportunity to make life easier for Koreans suffering through terrible banking services. It may seem like a small point, but it really had a big impact on the people I was negotiating with at the banks and eve with regulators.”

“I also have my incredible team to thank. Two of my co-founders were part of the team that previously developed one of Korea’s most successful mobile services. That prior experience in developing a great user experience and acquiring lots of users at speed was critical as we developed and launched Toss. We’ve all worked hard to make this happen.”

What is Toss’s business plan?

“Our focus until now has been customer acquisition, primarily by creating a user experience that people love. We wanted to have a large number of users for our app before focusing on monetisation. Now that it is accomplished we will start introducing new profitable services such as micro loans and foreign remittance.”

“The market potential is huge in Korea. To apply for a loan online is very complicated; it takes many steps and in the end the customers still need to bring physical documents to the bank. The result is that only 1% of loan applications are done on mobile. This is lower than the global average, despite Korea’s incredible mobile infrastructure and mobile penetration. Toss is changing this. We want people to see Toss as the go-to mobile service, the center of their frictionless financial lives on mobile. There’s obviously huge opportunities to develop profitable revenue models once we win the market.”

“For now most of our growth has been made without any marketing efforts or paid advertising. 90% of our growth comes from word of mouth. On average each active user transfers money with Toss 6.7 times a month.”

“We’ve used the same, soft marketing technique when we launched Toss Financial Dashboard service. We didn’t advertise it or even notify our users. We simply added it as a new feature in the app and let our users discover it. Like our money transfer service it’s a valuable and frictionless experience. Now 25% of our existing customers use it.”

Now that you’ve secured fresh funding, how do you plan to spend it?

“Our goals is to acquire users and launch compelling products that people find valuable. We’re confident that we can reach our break even point using around half the funds from this investment. This will give us flexibility to react to changing market conditions and build a robust business.”

“We don’t plan to use the funding to advertise Toss. Instead, our marketing strategy, and where we’ll dedicated funds, is to stay true to our principle of delivering a market leading user experience on mobile.”

What is your vision for Viva Republica and fintech?

“We want to make finance, what it ought to be, simple. We want Toss to be top of mind when people think about money transfer, loans and anything related to mobile banking and consumer finance.”

“In the near future mobile will be central to people’s experience with financial services. We are committed to dominate the market by providing an amazing consumer finance experience on mobile. Toss is ideally positioned to be the consumer finance app of choice.”

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