Kakao Pay Corp. ($A377300)

Good morning, and good evening. Thank you all for joining the conference call for the Kakao Pay earnings results. This conference will start with a presentation followed by a Q&A session. [Operator Instructions] Now we will begin the presentation on Kakao Pay's First Quarter of Fiscal Year 2026 Earnings Results.

[Interpreted] Good afternoon. This is Allen, CEO of Kakao Pay. Thank you all for joining our company's first quarter 2026 earnings call. I will begin with key metrics, including TPV, consolidated operating revenue and expense, P&L followed by key business highlights for Q1 of 2026. First, on key metrics for the first quarter of '26. Q1 '26 TPV was up 15% year-over-year, reaching beyond KRW 50 trillion for the first time in a quarter, reporting KRW 50.9 trillion. Revenue TPV was also up 15% year-on-year to KRW 14.6 trillion, achieving growth in both in terms of volume and quality. Underpinned by TPV growth, Q1 consolidated revenue increased 42% year-on-year to KRW 300.3 billion, while Payment, Financial Services and Platform reported more than a double-digit growth across the board. We saw steep growth of 82% year-on-year from financial services in particular, which now accounts for 49% of total revenue. Operating profit in Q1 was KRW 32.2 billion, yet again rewriting quarterly record. EBITDA was KRW 40.8 billion and net profit came in at KRW 34.7 billion, driving OP margin of 10.7% and net income margin of 11.6% both posting a double-digit profit rate at the same time, which is a noteworthy result. Next is on business performance metrics. Daily active user of Kakao Pay increased 8% year-on-year to 6.69 million users, sustaining a robust uptrend. Share against monthly active user was 27.8%, 1.2 percentage points higher versus last year on the back of expanded off-line payment and My-Data-based asset management services, attesting to a more diversified user facing and stronger stickiness. Average transaction per user in Q1 increased 35% year-over-year to 80 transactions with activated brokerage services and wider acceptance and stronger user benefit, frequency of use across all service domains increased sharply, widening the user base across the board. Q1 ARPU thus increased 37% year-over-year to KRW 12,464 on the back of expanded contribution per user following evenly spread growth across all businesses. Next, CFO, [ Ivan ] will brief you on TPV and financial performance.

[Interpreted] This is Ivan on the financials. Q1 TPV increased 15% year-over-year, reporting KRW 50.7 trillion. Revenue TPV also increased 15% year-over-year to KRW 14.6 trillion, taking 29% share against the total TPV as we build on economy of scale and profitability at the same time. Payment and money transfer continued to drive double-digit growth underpinning the total TPV growth. In terms of the breakdown, payment service growth was 21% year-over-year, supported by evenly spread growth across all segments. Online payment was powered by data-driven merchant joint marketing and seasonal promotions for New Year holidays, back-to-school season and vacation period, which drove non-captive TPV accompanying 13% year-over-year growth. Offline payments saw 50% year-on-year growth through overwhelming user benefit offerings and Samsung Wallet integration leading to coverage expansion. Cross-border payments saw 20% year-on-year growth on stronger demand for domestic travel and targeted promotions against strategic merchants. Loan service TPV sustained 2 consecutive quarters of Q-over-Q growth on a product lineup expansion and execution improvement through web-in-app integration despite stringent lending regulations by the government. Stock trading volume was up 4.4x year-over-year, surpassing KRW 79 trillion. Such activation in trading led to a rise in money transfer to my own account, thus driving money transfer TPV by 15% versus last year. Kakao Pay Money balance reported KRW 2.51 trillion as of end of Q1. Next, on operating revenue. Q1 revenue was up 42% year-over-year, recording KRW 300.3 billion, breaking the KRW 300 billion mark for the first time on a quarterly basis. All of the business lines, including payments, financial services and platforms saw steep double-digit growth year-over-year, sustaining a robust scale expansion. In terms of the breakdown, firstly, digital payment was up 13% year-on-year to KRW 138.4 billion, fueled by online non-captive growth. Digital finance revenue was up 82% year-over-year, reaching KRW 145.9 billion, thanks to salient growth from investment and insurance and now taking up 49% of total revenue. Investment service revenue reported 137% year-over-year growth against the surge in domestic trading volume, coupled with weak won impact and excluding rising FX rate impact, the growth rate will adjust to 95%. Insurance service revenue saw 78% year-over-year growth on the back of solid demand for core products, including overseas travel insurance and handset breakage insurance as well as the insurance DB sales. Loan service saw year-over-year decline following stronger regulation, but through product diversification and web integration, we were able to sustain 2 consecutive quarters of Q-over-Q revenue uptrend, cementing the recovery trajectory. Platform Service reported 67% year-over-year growth driven by activation of DA advertisement and comparison service for telecom rate plans. Operating expense in Q1 increased 29% on year and 8% on quarter, recording KRW 268 billion. Marketing expense was up 24% year-over-year, impacted by off-line expansion in payment coverage and stronger affinity marketing. But due to year-end promotional base effect and strategic controls over cost, it fell 29% versus last quarter, coming in at KRW 22.4 billion. We are maintaining the marketing spend at reasonable levels of 7% against our total revenue. Labor cost was up 21% year-on-year on business expansion and hiring of key talent, while due to operational efficiency gains from AI usage, labor costs fell slightly Q-over-Q, displayed a stable and controlled trend. Commissions paid increased 14% year-over-year due to operating expense incurred from MyData and growing infrastructure spend. However, it is significantly lower than the overall revenue growth, which is a testament to tangible results coming out of margin-focused cost base enhancements. Other operating expense increased 119% year-over-year on recognition of derivatives and foreign currency-related expenses from financial subsidiaries. Next is on P&L. Q1 consolidated operating profit came in at KRW 32.2 billion, reaching new highs for the quarter. OP margin was 10.7%, continuing on a robust stepwise growth since the turnaround in Q1 of last year. EBITDA reported KRW 40.8 billion with margin at 13.6% and net income was KRW 34.7 billion with net income margin of 11.6%. As you can see, all our profit margin metrics have recorded a double-digit figure. And this actually is a reflection of greater contribution made by our financial entities and stronger earnings capacity of our core businesses. Kakao Pay will continue to optimize its operation to enhance profitability and ramp up its capacity in generating earnings. Now briefly on Q1 standalone results. Standalone revenue was up 15% on year to KRW 185.1 billion. Separate basis operating profit was up 37% year-over-year to KRW 18.6 billion with OP margin at 10%, maintaining a double digit following last quarter. Net income margin was 12.4%, showing a robust result of double-digit performance for OPM and net income margin, both on a consolidated and standalone basis. Next, I will turn it over to Jaesun for major first quarter performance highlights.

[Interpreted] Hello. This is Jaesun. Allow me to walk through our digital payment performance. Underpinned by competitiveness in data, we've upgraded our merchant strategy to speed up growth in scale. Firstly, online payment revenue saw 12% year-over-year growth with non-captive segment recording high growth of 24%, expanding online payment mix to 63%. Through solutions that combine Paydata with MyData, partner companies drove real revenue expansion. Moving forward, based on proven data capabilities, we will expand non-captive partnerships domestically and globally to solidify our market dominance. In terms of specific use cases, we used Kakao Pay's proprietary data together with MyData in order to analyze user's complex payment and behavioral patterns and make precise predictions on churn risk for each of the merchants. We built automation system sending instructions for reward payment in a timely manner when user inactivation is most expected. And as a result, target group's retention meaningfully increased versus organically returning users, contributing to user lock-in and higher TPV. We also built a framework based on high-quality customer data and through automatic matching of optimal look-alike modeling for each merchant, enabled identification of prospects and personalized benefit offerings. We are matching against the lookalikes in the peer group of a specific vertical or reverse tracking lookalikes of highly loyal vertical customers. Through such sophisticated efforts, in case of specialized models for subscription services, we saw 36% payment conversion from top-tier prospects. Our lookalike modeling is serving as a growth engine across the entire domain, including both on and off-line. Next, on AI services, I will hand it over to Jeff, Head of Services.

[Interpreted] This is Jeff. Let me talk about AI business, which is Kakao Pay's future growth engine. By scaling up our proprietary AI services and connecting with the external agents, we are solidifying the agentic AI ecosystem. First, we drove expansion of PayI, which is Pay's own AI services. While we made enhancements to health and benefit AI agents, Financial Assistant version 1.0 offering coaching for healthy habits and finance powered by MyData is currently in the workflow pipeline. All of this was implemented as part of our master agent framework, having integrated control across wide-ranging subagents, and we're targeting public beta by end of Q2 this year. Also within the Kakao ecosystem, we're carrying out agent-to-agent integration. We recently completed MCP integration with ChatGPT for Kakao, now enabling inquiry for payments and money transfer details inside the chat room. We are also preparing for agent-to-agent and MCP integration with Kanana, which is Kakao's own model and will introduce extended services such as agent for integrated statements in the second half of the year. Externally, we're working towards setting global standards for AI payment as well. As Korea's sole founding member of x402 Foundation, we're leading the effort on establishing a global AI payment protocol. This is a standard for machine payment designed for autonomous payment by the AI agent without human intervention and will be an opportunity for the company to fortify its tech leadership within the global AI financial ecosystem. By moving ahead of others in such standardization efforts, we will provide frictionless payment environment while broadening our global market influence. Next, I will invite Eddie, who's in charge of operations, to present on the performances of securities and insurance business.

[Interpreted] This is Eddie. In terms of quarterly performance and future strategies for our insurance services, to begin with, we've been able to boost the insurance revenue stream by driving both database volume growth and quality enhancements. There was growth from both DB volume and pricing. Database generation volume posted 61% year-over-year growth in the first quarter, displaying a robust growth potential in terms of supply. We also expanded the share of high-intent prospects in the database, leveraging MyData for insurance coverage analysis, which drove higher partner satisfaction upon which we were able to increase the unit price by 21%. As a result, revenue increased 76% year-on-year with the positive feedback effect of rise in both DB distribution volume and the unit price. For the sub-agency model, after the adoption of standard sales practice, SA's conversion rate was up 2.1x versus previous quarter, clearly a display of its effectiveness. We plan to advance in phases support system for agents, including expanding the consultation team by the first half of the year and data visualization and eventually introducing AI-powered operating system to maintain sales efficiency improvements. Next on brokerage services. Kakao Pay Securities posted a record high growth in AUM and earnings on the back of strong domestic and overseas equities market. As of Q1 end, AUM was up 208% year-on-year to KRW 13 trillion, and this growth was fueled by actual net inflow of funds, not merely by higher valuation from uptrending stock prices. Net inflow in Q1 was KRW 3.7 trillion, which is quite remarkable as it is equivalent to 76% of last year's annual inflow. Kakao Pay Securities Q1 revenue thus was up 124% year-over-year, breaking the KRW 100 billion quarterly mark for the first time, while operating profit recorded KRW 23.6 billion, which is 55% of last year's annual figure. Quarterly trading volume surged 339% year-on-year, reaching KRW 79 trillion on strong market, expanded product lineup and the FX impact. Number of transactions also increased 206% to 221 million transactions and active user on a monthly basis was up 143% year-over-year, reaching 1.4 million users. Now on Kakao Pay Insurance, there is clear uptrend in performance powered by solid top line growth. As such, Q1 revenue was up 85% year-over-year to KRW 24.3 billion. And coupled with solid performance from overseas travel insurance, which is our core product, we started seeing revenue contributions from regular premium products driving growth such as from phone and student insurances. We expect higher share of regular premium products and profitability-focused portfolio will further support sustainable business. Gross premium written hence for the first quarter was up 66% year-over-year with regular premium recording a sharp growth of 157% year-over-year, attesting to a stable earnings base. Kakao Pay Insurance also continues to widen its customer base by introducing new and distinctive product offerings. Pet insurance is a recent launch, offering industry's lowest premium but maximum coverage. Coupled with strong competitiveness and social feature, the product is winning positive market feedback. Kakao Pay Insurance will continue to roll out innovative user-centric products to enhance accessibility to insurance services and also to further fortify sustainable growth levers. Moving on to ESG and upcoming plans, I will invite back Allen for closing.

[Interpreted] It's Allen again. Kakao Pay has demonstrated its sustainable management capabilities, both domestically and on a global stage. For 3 consecutive years, we made S&P Global Korea Index while being selected as the Yearbook member for 3 years in a row as the only fintech company within the financial services sector recognized for its outstanding ESG performance in human capital, ethical management and sustainable financing, among others. We were also awarded prime status in ESG evaluation by the biggest global proxy advisory, ISS, and was recognized as the industry leader, winning high ratings across all ESG pillars. Moving on to environmental and social contribution efforts. We at Kakao Pay practice inclusive finance through Blind Spot Pay School, helping those with limited access to digital finance. We recruited 50 partner institutions in 2026 to create practical educational opportunities for seniors and ran awareness programs showcasing a documentary titled, My Exploration of Blind Spot, featuring digital financial exclusion experience by senior citizens. Also for shared growth with small vendors, we significantly increased support to Oraeorae Together Store this year. New store onboarding was up 67% year-over-year, reaching 100 new stores and extending support to brands that mainly operate offline as well. On top of the sales channel, we also extended tailored packages for growth, which includes PR services, training for capacity building and digital transformation solutions, thus supporting small merchants to gain self-sustaining capacity across on and offline businesses. Lastly, we renewed ISO 14001 certificate, an international standard on environmental management, enhancing relevant processes and under which we are building sustainable office environment as we respond to challenges of climate change. Kakao Pay moving ahead will engage in ESG activities that have organic relevance to our core businesses to fulfill our social responsibilities in our effort towards making our future sustainable. We've so far walked through key performance highlights for the quarter. In Q1, we surpassed KRW 300 billion in quarterly revenue, recording a double-digit OP margin, both on a consolidated and separate basis, which is a testament to Kakao Pay's solid earnings capacity. What's more encouraging is on top of the leaps that we've made by our financial entities, we can say we've entered the growth trajectory in full swing where data-driven business models, which we've explored and validated last year as well as new growth levers are translating into real numbers. It goes to show that Kakao Pay is now more than a platform, having evolved into a strong financial ecosystem equipped with profitability and scalability. We will maintain this overwhelming growth momentum solid during the year using innovation and technology beyond improving user convenience, but also for lifting corporate value. The entire Kakao Pay crew, myself included, will be relentless in creating an environment where users can feel at ease when engaging in daily financial activities, and we'll turn this mission into tangible results. Thank you.

[Interpreted] [Operator Instructions] The first question will be provided by Sinyoung Park from Goldman Sachs.

[Interpreted] This is Park Sinyoung from Goldman Sachs. I would like to ask you 2 questions. First one relates to your stablecoin initiative. In Korea, the legislative process for stablecoin is being somewhat delayed, but I'm sure that this will be a great opportunity for Kakao Pay to further strengthen your market share within the financial services market. You've also talked about your activities and participation into the global protocol initiative of x402 Foundation. And so I would like to understand as to the update as to how your stablecoin business is currently ongoing? And what will be your key focus area? And how will it connect to the overall wallet ecosystem? Second question relates to basically, we've seen a significant contribution from financial services to your topline revenue. It's actually reached around 40% fueled by a very steep growth of Kakao Pay Securities. You were able to prove that there was a structural and also qualitative change in the overall revenue structure. I would like to understand as to what you feel is the most optimal mix from a mid- to longer-term perspective, looking at different businesses such as payments, digital finance and platform. And when do you think that you will be able to achieve that most optimal level?

[Interpreted] This is Allen. I will respond to the first question that you asked relating to the stablecoin. Now we're making preparations with -- jointly together with other Kakao Group companies to develop our stablecoin business. Kakao Pay is deeply involved in the design of the infrastructure and issuance aspect as well to be led by the consortium as well as designing the business structure to support the distribution of stablecoin as a discrete distributor and building the technical foundation that is required. Reason why we're involved on the both sides of designing the infrastructure for issuance as well as for the distribution is to win an overwhelming positioning in the stablecoin market. We're leading the design efforts so that the infrastructure to be developed by our consortium can really support wide-ranging versatile use cases. This will eventually help companies, including us to adopt our stablecoin and will help expand issuance and distribution as well as usage scope of stablecoin. So what I've just explained was from a point of view of how we can actually enlarge the pie basically through this effort led by the consortium with regard to the issuance of the stablecoin. From now on, I'm going to talk about the big piece that Kakao Pay will take out of that pie. So that's the perspective that I will be highlighting from now on. So under this optimal infrastructure, we're currently building services to empower users to have stablecoin in Kakao Pay's wallet, meaning in the wallets of 40 million users, have them freely send and receive, make payment and invest in stablecoin with no constraint. So we want to be able to bring convenient use of stablecoin to be part of Kakao Pay services, which already enjoys top-tier positioning in the financial sector in terms of number of transactions for payment as well as for money transfer. And we hope to expand user acceptance while lowering our own cost base and eventually identifying new business opportunities such as stablecoin wallet as a service and creating feasible business case. In the opening, I briefly mentioned that we're participating in the x402 global open protocol initiative. This is one of the ways in which we are trying to naturally bridge the payment demand with our stablecoin ecosystem against the AI backdrop. We're going to make it so that Kakao Pay and our stablecoin become the most critical payment method in the AI ecosystem. And through these efforts, Kakao Pay will not only bring success to the stablecoin consortium, but also will create new growth engine for Kakao Pay itself.

[Interpreted] This is Ivan. Responding to your question about our revenue structure. Now we've been working on our platform strength as a financial platform and have diversified business towards personalized financial service offerings, which drove higher revenue share of digital finance and the platform revenue. Our corporate strategy and direction is now translating into such results, and our thinking is that optimal revenue generation comes from following the business direction rather than fixing a certain revenue mix target in advance. Now also, our service portfolio is highly exposed to market movements or volatilities and regulation, which are quite hard to predict. In payments, digital finance and platform, we're doing our best to drive growth from each business domain and maximize growth potential based on their business fundamentals. We believe it's important to fend against risk from outside while driving growth of the company at the same time. And from a mid- to longer-term perspective, we want to be able to expand our services and nimbly navigate a fast-changing industry environment with regards to the various different needs of the users, the adoption of AI and stablecoin. So in summary, based on our strategic direction for non-payment business going forward, we do expect our non-payment business, including the digital finance business to actually account for more than the majority of our top line revenue. But rather than being fixated on this number as being optimal, we want to be able to respond to the market in an agile and nimble manner and solidify our revenue stream where everyone shares growth across payments, digital finance and platform as we continue to invest in creating our future businesses.

[Interpreted] The following question will be presented by Jin-Gu Kim from Kiwoom Securities.

[Interpreted] I would like to ask you 2 questions. First, relating to your overall AI service plan. Last year, with PayI, which is your own AI services, you introduced insurance diagnostics, AI as well as card and payment benefit-related AI agents. And you've mentioned that you're preparing at this point in the pipeline an asset management and payment-related AI agents in 2026. So can you provide some color as to the update of what is taking place at this point? And also what are the specifics of the action plan with regards to the test bed for such agents? And also if there's anything else that's included in this overall AI plan, please do share that with us. Second question is on your payment business. We've seen very clear performance improvement on the non-captive side, the online non-captive segment. In Q1, despite a somewhat of a depressed commerce market, we see a very steep growth rate. What do you feel is the key driver behind the continuation of such strong growth from the non-captive segment? It will be helpful if you could also mention the scaling up or the upgrade of the database or data-driven analytics using MyData and Paydata as well.

[Interpreted] This is Jeff. Responding to your first question on AI. Now in AI agent for asset management, we're focusing on building Financial Assistant version 1.0. It actually goes beyond mere information search. It also provides proactive asset management by monitoring and optimizing financial status of a user in a real-time basis. And the key to this has to do with data and the method of implementation. In terms of data, insight is offered based on the user's MyData, which is, in fact, financial and payment data of the user. And in terms of the implementation method, we're using integrated master agent approach under which there are subagents for insurance, investment and for instance, combined statement, which are all connected, enabling both cost efficiency gains and higher service quality. AI from global big techs have only limited access to financial data of their user base, so we think AI Financial Assistant of Kakao Pay has a unique edge and our target date for initial public beta release is end of Q2 of '26. Also, payment AI agent is at the core of agentic payment responsible for the last mile of money movement in the world of AI agents. Let's say, a user after exploring a certain product decides to make a purchase inside the commerce domain run by the Kanana agent. At that time, payment AI comes into play, offering the most optimal scenario for user benefit and completes the payment immediately. So even if search is made within Kanana, transaction is closed by Kakao Pay. To this end, we are, at this point, working towards securing a real-world use case before the end of the year in fiat-based payment by working with key strategic domestic merchants. Also to incorporate next-generation payment methods, including stablecoin, we've joined the x402 project so as to gain technological and regulatory readiness and are planning on introducing highly well-made services in step with the legislative timeline.

[Interpreted] This is Jaesun. Responding to your question on our online non-captive performance. Yes, you are correct. Our non-captive online growth was 21% year-over-year Q4 of last year. And in Q1, it was actually higher at 24%. And non-captive mix out of online payment revenue increased meaningfully from 50% to 63%. Despite contractions in the commerce market, growth driver, in my opinion, was strategy behind strengthening the semi-captive market. By selecting key sectors such as delivery, shopping, fashion, air travel, accommodation, we strategically focused on strong coupling -- strong strategic coupling that is with key merchants who are building their category competitiveness, running marketing, targeting their specific needs as we refined our user engagement. So we have a basic set of seasonal campaigns and promotions catering to each merchant. And on top, we are bringing our own data capabilities using MyData and data analytics, we analyze 61 complex payment behavioral patterns, select target segments using prediction model, provide optimal benefit to users at the right timing. All of this is based on automated process, which helped build retention. Let's say, we have a strategic merchant A, we can detect early on that a heavy user of the app is about to move to a competitor by analyzing Kakao Pay data and offer personalized reward at the right timing based on payment habits and patterns, which will help increase user retention for the merchant. We're also using payment and behavioral data analytics to acquire prospects as well as retaining high-quality customers. By identifying new customers and delivering personalized benefits, we were able to drive higher payment conversion. Based on all-around data analytics, leaning towards activation strategies, we're strengthening collaboration to attain win-win for both the merchant and for Kakao Pay. Through Kakao Pay, merchants can retain and expand their customers efficiently, which led to higher TPV and our market share for Kakao Pay against the merchants. We will continue to broaden this collaborative structure and virtuous flywheel.

[Interpreted] Due to the time constraints, we will be taking the final question now. The last question will be presented by Yu-dong Yoon from NH Investment & Securities.

[Interpreted] My question relates to your business, your securities business. We've seen a continuous profit growth for your securities entity on a quarter-over-quarter basis. And because of the market tailwind, we think that this will be a good opportunity for you to narrow the gap that you have with your peers or competitors or to jump up in the ranking. I would like to know as to what strategies you're currently envisioning? And do you also have plans for additional capital raising in order to expand your credit provision business?

[Interpreted] This is Eddie responding to your question. Kakao Pay Securities is considered as a top 6 player in terms of user volume based on the MAU metrics based upon our own criteria. And we believe it's important to actively expand user acquisition going forward. And our goal is to narrow the gap with our competitors in terms of the MAU so that we can reach above 2 million and be top 2 by the end of the year. To that end, we're working on a variety of marketing and branding activities and improving our user interface as well as UX. Also to drive synergies across the group, basically for Kakao Pay Securities, we're providing stock trading inside the Kakao Bank app channel. So we do look forward to additional user inflow through this channel. On top of such efforts by delivering tailored trading experience across user segments from light users to heavy traders and by using AI to deliver investment-related information and by growing the community itself, we're looking to narrow the trading volume gap with top-tier securities companies. Kakao Pay Security's vision is to give people the experience of making money the right way, the genuine way. And under the goal of lowering the hurdle for everyone, solving information asymmetry, empowering people to invest with comfort and safety, we are focusing on innovating the overall user experience. Focusing our UX capabilities, we are bringing and focusing our UX capabilities into consumer research and design as well. And under the culture of fostering data-driven experiments, we are optimizing usability of products aligned with needs of different customer segments. So in the second half, on top of chart-based ordering, quick ordering and pro mode revamp, we will bring AI analytics across the entire app. And in terms of the business of extending credit, on rise in the domestic stock trading volume, provision of margin loan is, yes, also growing. Although it is not easy to predict market volatilities, we plan to monitor market trend closely and decide on the need of capital injection if need be.

[Interpreted] Thank you. This brings us to the end of the first quarter earnings conference call of Kakao Pay. If there are any unanswered questions, please do not hesitate to contact us at the IR team. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]