[KH Explains] Will Webull reshape Korea's mobile trading?

Webull Corporation, a prominent US-based online stock trading platform, has initiated preliminary operations to establish its presence in South Korea.

Speculation surrounding the debut of the New York-headquartered company's services rose recently following reports indicating Webull's engagement with local financial regulators to secure related licenses for domestic operations. Citing Webull Korea Preliminary CEO Rhee Won-jae, Herald Biz disclosed last month that Webull "plans to apply for licenses around March."

Despite no formal application for authorization being submitted yet, a Financial Supervisory Service official informed The Korea Herald that the procedure would commence upon Webull's submission of the application to the Financial Services Commission.

"There are various conditions to be met to obtain approval for the licenses, and as far as I'm aware, Webull is currently navigating through this stage before proceeding with the formal application," the official elaborated.

This development comes two years after the online broker established Webull Korea Preliminary in March 2022, marking its initial stride toward expansion into the Korean market. In July, it appointed Rhee, previously associated with Korea Investment & Securities and Hyundai Motor Securities, as the CEO of the overseas entity.

What is Webull?

Renowned for its commission-free trading service, Webull made its debut in the United States in 2018. Founded by former Alibaba and Xiaomi employee Anquan Wang, the company gained significant traction during the meme stock frenzy in 2021, when amateur traders swarmed online trading platforms to invest in stocks such as GameStop and AMC.

Along with another commission-free trading app, Robinhood, Webull is one of the most popular investing apps in the US and currently has 20 million registered users across 15 regions globally, including Australia, Canada, Hong Kong, Japan, Mexico and Singapore.

On its home grounds, the company is preparing to go public. The firm plans to list on the Nasdaq in the second half of this year via a merger with SK Growth Opportunities Corporation, a blank-check company launched by South Korean conglomerate SK Group.

According to reports, Webull will retain its identity following its merger with SK Growth Opportunities Corporation, which is anticipated to raise approximately $100 million, resulting in a pro forma enterprise valuation of $7.3 billion for the combined company.

Imminent Korean launch

If granted, Webull will be the first overseas company to directly obtain licenses for retail brokerage from Korean regulators. Unlike Taiwanese Yuanta Securities, which acquired Tongyang Securities in 2014 to enter the retail brokerage business, Webull is going directly into the market.

Equipped with seamless usability and intelligent analytical tools, many anticipate Webull to shake up the local brokerage industry, particularly amidst heightened interest from retail investors in overseas stock markets. According to the Bank of Korea, retail investors' total outstanding balance of overseas securities investments surged to a record $77.1 billion last year.

The industry is closely watching the introduction of a zero-commission policy. Webull currently offers most stocks, exchange-traded funds and options free of commission for its US users. Launching in Japan in April last year, Webull took off with "the industry's lowest commission fee" but did not go completely commission-free.

An industry insider noted, "It's likely that Webull won't replicate its exact US model in South Korea. Should it adopt any form of the zero-commission system, it could significantly influence the local industry. However, the extent of this impact hinges on the specifics of Webull's business model."

While domestic investors have not been able to directly trade through Webull, many are already familiar with the platform and leverage it for real-time information. Unlike domestic brokerages, which must collaborate with foreign securities firms to broker overseas stocks, Webull's direct approach could alleviate minor inconveniences such as time delays and transaction restrictions experienced by Korean investors.

Heated competition

Webull's emergence could potentially threaten mobile-only trading firms in Korea, which have primarily expanded through brokerage services for retail investors.

Foremost among them is Toss Securities, which secured the fifth position among local brokerages for foreign stock trading commissions last year. Within less than three years of operation, the online broker posted its first annual profit, crediting the achievement to enhanced earnings from trading commissions. Its total commission revenue reached 103.3 billion won ($78.6 million) last year, with 67 percent of the total stemming from overseas trading.

Kakao Pay Securities has a bleaker outlook, with losses escalating steadily from 6.8 billion won in 2020 to 51.3 billion won in 2023, and ranking eleventh in terms of overseas stock trading commissions last year.

Industry insiders anticipate that Webull's entry into the market will heighten competition for lower commission fees in the retail brokerage sector, potentially impacting the profitability of fledgling businesses.

"Their users are potential users of Webull because most domestic individuals invest in foreign stocks, particularly in the US," explained Hong Ki-hoon, an associate professor at Hongik University's business department.

However, he expressed skepticism about Webull becoming a game-changer, suggesting that it needs to offer unique advantages not available from Korean companies.

"This could include a wider range of stocks or faster information delivery. But these factors are unlikely to prompt users to switch to a foreign app," he added.

According to an industry source, the allure of low commission fees may not be as strong for Korean customers as expected. The source noted that their company experienced minimal changes in market share despite maintaining regular commission rates, even during zero-commission events held by competitors.

"South Korean consumers demand high service standards. The same goes for trading apps. Local apps already excel in accessibility and usability, with competitive commission fees and potential tax benefits. Unless Webull offers something exceptional tailored for Korean investors, it will struggle to snag market share here," Hong concluded.