Lee Seung-gun cut his teeth as a dentist before realizing his dream was to be an entrepreneur. So, eight years ago, he put down his drill and jumped into business. There were teething troubles: his initial eight attempts, all mobile services companies, ended in failure.
Then, in 2015, Lee came up with Toss, a peer-to-peer (P2P) payments firm to streamline South Korea’s painfully cumbersome money-transfer experience. Since then, the startup has expanded into offering a financial dashboard, credit score management, customized loan and insurance plans, and investment products.
Growth has been explosive. From 600,000 downloads in its first year, Toss currently has over 9 million users—nearly 20% of South Korea’s population—who push more than $1.5 billion in domestic transfers every month.
“It has almost become like a word, like Google. People ‘Toss’ money to each other,” said Shivaji Das of Frost & Sullivan.
Put another way, some 7% of all P2P online money transfers in Korea’s banking system go through Toss, a number that Lee expects to go up to 10% by the end of this year. That will put his three-year-old company at par with the biggest lenders in Asia’s fourth-largest economy.
“Our investors always keep saying that Toss is the fastest growing financial company in global history,” Lee, 37, said in an interview in Seoul earlier in October.
That list of investors includes Singapore’s GIC, Sequoia China, PayPal, Bessemer Venture Partners, Goodwater Capital and Altos Ventures. In all, Toss’s parent, Viva Republica, has raised $116 million in its quest to upend Korea’s fintech market.
Still, Lee is not satisfied. In 2019, he wants to raise more than $100 million to stave off competition at home, explore acquisitions to grow Toss’s offerings, and expand into Southeast Asia.
“By the end of next year, we are pretty sure we’ll be able to grab most of the Korean users who have a willingness to use fintech services. And at point, we may hit the saturation point,” Lee said. “So we’ll need to go beyond the Korean market.”
Three years ago, Toss almost never got off the ground.
Soon after it launched, Korea’s financial regulator came calling. “In my view, (along) with my lawyer, it was totally 100% okay,” Lee recalled. “But they were like, ‘Oh, this is new’, so they just closed it.”
That kicked off a period of prolonged negotiations with the regulator, even as Lee and his small team reached out to convince Korea’s 19 banks to help them build a fintech platform. Only three came on board at the start.
The fundamental proposition, nonetheless, was solid. “Every Korean has more than five bank accounts on average. And every Korean has more than three credit cards. So aggregation is one of the key value to the users,” Lee said.
Eventually, as the Korean government and the heavily regulated banking sector came around, Toss picked up steam with its streamlined system. It helped that money transfers on traditional platforms often involved multiple passwords, plugin installations, and sometimes even confirmation phone calls. Aside from P2P payments, Lee put together range of other offerings— “Venmo plus Credit Karma plus Mint,” as he describes it—to draw in users, which were then monetized by selling them financial services, including loans and insurance.
The model appears to be working. Annual revenue grew to $20 million last year, from $3.5 million in 2016. In 2018, Lee hopes to take in upwards of $60 million.
Although not quite the US or China in terms of volume, Korea’s fintech market has emerged as a key growth market in Asia. “The driver has been super high usage of smartphone and a population which is quite eager to try out new things, as well as the companies which are relatively sophisticated,” said Das of Frost & Sullivan.
The regulatory easing that began in 2015, around the time Toss rolled out, also brought in some of Korea’s biggest internet companies and banks into the fintech sector. And there’s more on the way, for instance, with the Korean government’s plans to adopt a regulatory “sandbox” for the financial industry to experiment with new innovations.
For Toss, which has enjoyed a first-mover advantage to date, that means more competition. “I think other online payment platforms, such as KakaoPay, NaverPay, and SamsungPay have their own strength that is better than Toss in terms of customer asset and ecosystems they’re based on,” said Jin Jo of KPMG Korea.
Kakao and Naver, the country’s two largest internet companies, can exploit their existing platforms to tap a user base many times larger than Toss’s current reach. “For instance, KakaoPay can leverage KakaoTalk’s 50 million active users, which account for most of the Korean population and O2O [online-to-offline] platforms,” he added. “NaverPay always can be directly linked to Naver’s searching and shopping experience.”
Armed to the teeth
Lee can sense there’s a war coming, which is why he wants to bolster his defenses with more than $100 million next year. To cement Toss’s position as competition intensifies, Lee not only needs more marketing dollars, but also more services to keep users hooked.
So, Toss is working on a trading platform for securities and expanding into wealth management, among other things. “Millennials (in Korea are) really open and ready to embrace really good investments measures, but the accessibility or usability (of existing platforms) is painful,” Lee explained.
All of this won’t happen in-house at Toss, which currently has a team of 160. Instead, Lee wants to use part of the funds he’s planning to raise for acquisitions. “We may need to acquire some company who’s trying to build this platform for each individual industry, such as insure-tech,” he added.
To analysts like Frost & Sullivan’s Das, Toss’s intention to quickly build a wider platform with a large user base seems right. “Otherwise,” he said, “I sense that these companies will be acquired by existing majors with high cash reserves.”
For Toss, the final piece of the plan is to test the waters outside of Korea.
Vietnam, in particular, is a target. The Southeast Asian country lacks a dominant fintech player, or a major internet company, like Naver, that has a messenger service and a fintech arm. Well over of half of its 92 million residents are millennials, most of whom are smartphone users. Lee is also betting on Vietnam’s fractious past with China to keep other foreign big fish out. “They really hate WeChat and AliPay,” he said.
“I think we can really build a good operation,” Lee said, “because we already have a really successful playbook in South Korea.”