Kakao creates W300 billion fund, pledges to work for society

Kakao Group, the largest mobile technology business in South Korea, pledged on Tuesday to spend 300 billion won ($255.4 million) to support small businesses and the self-employed, looking to soothe growing public criticism over its rapid business expansion.

Top executives of Kakao Corp. and affiliates met Monday and Tuesday to devise a package of measures for its “co-existence” with small enterprises whom critics said the mammoth platform is driving out of market, which included the creation of a 300 billion won fund.

“The recent criticism is a strong warning from society,” said Kakao founder and chairman Kim Beom-su.

“It is time that Kakao and all of its affiliates abandon how they have grown over the last 10 years and seek fundamental changes to achieve a growth that fulfills social responsibility.”

Included in the package is a plan to turn K Cube Holdings, an investment firm wholly owned by Kim and his family, into a social enterprise.

K Cube Holdings, which holds a 10.59 percent stake in Kakao Corp., is under investigation by the Fair Trade Commission over suspicions that the group has left out necessary information or submitted false reports over the past five years.

K Cube Holdings is the second largest shareholder and de facto holding company of the Kakao empire.

Before Tuesday’s announcement, it was reported that the FTC was looking into another potential law violation surrounding the firm, in regards to its holdings of Kakao Corp. shares.

Under a local law intended at separating banking and commerce, a financial company is restricted from owning a certain percentage of equity and voting rights in a company from a non-financial sector.

By changing the identity of K Cube Holdings, Kakao Corp. is seen as seeking to steer clear of the controversy.

The group, in a press release, said the shift is in line with other plans to contribute to society.

“K Cube Holdings will be a company that focuses on creating social value through education and nurturing talent for the future,” it said.

Utilizing the almost-ubiquitous messenger app KakaoTalk, the group has grown exponentially over the past decade, expanding into a variety of businesses, including ride-hailing, banking, e-commerce and content.

As regulators began looking into the power of large platforms, the newest Korean conglomerate has faced a flurry of accusations of unfair practices and abuse of market dominance in recent weeks.

Aside from the 300 billion won fund and K-Cube plans, the group pledged to withdraw or reduce its businesses in the areas in which they compete against smaller offline players.

Among others, Kakao Mobility said it will relinquish its controversial “smart call” service for Kakao T taxis.

The service that charges an extra fee for calling a taxi faster than the ordinary service sparked backlash from both drivers and customers as the company raised the fixed fee from 1,000 to a range of 1,000 won to 5,000 won.

The mobility company also said it will cut the pro membership fee charged to taxi drivers to 39,000 won per month. The membership was 99,000 won a month, allowing drivers on the paid membership to receive calls they prefer earlier than others. The firm will continue discussing better membership programs and incentives with taxi organizations, it said.

For designated drivers, the company will cut the current fee fixed at 20 percent of service rate to a range of 0 to 20 percent based on supply and demand.

The Kakao affiliate also decided to pull out from the enterprise delivery service market, considering possible impact on other delivery service firms.

“The company will remember its original goal of making a better life through innovating how people move,” said Ryu Geung-seon, CEO of Kakao Mobility. “We will continue our innovation through conversations and cooperation with the related industry.”

By Song Su-hyun (song@heraldcorp.com)