South Korean financial companies such as banks and credit card firms will have to come up with a new business model to counter Kakao’s soon-to-launch financial transaction service, Woori Finance Research Institute said.

The most-used mobile messenger’s Bank Wallet Kakao, or KaTalk Bank, which is expected to launch in September, will have a limited impact on the financial services sector as it only allows users to transfer money or purchase online goods of up to 100,000 won ($97) a day.

However, Kakao’s all-new solutions enabling easy and simplified payment settlements without having to go through a complex authentication system will pose a serious threat to traditional financial companies with credit card and mobile banking services.

“The number of users will eventually increase as people see the convenience of the simplified banking procedure,” said Kim Jong-hyun, a researcher at the institute.

Currently, Internet banking services by financial companies require complicated of downloads and processes to make purchases worth over 300,000 won.

Kakao’s easy payment solutions developed in partnership with LG CNS, a local systems integrator, will allow consumers to input just their passwords before purchasing. The two IT companies will store their encrypted credit card information, like that of PayPal and Alibaba.

Though potential security risks persist with easier transaction services, the popularity of mobile banking is increasing.

The number of smartphone banking users surpassed 40 million in March, according to the Bank of Korea.

Financial transactions and payments using smartphones accounted for some 43 percent of total online banking, BOK data showed. The financial industry introduced mobile banking in December 2009.

In addition to mobile banking, Kakao is reportedly expanding its business portfolio with plans to develop cab-hailing and news services.

By Suk Gee-hyun (monicasuk@heraldcorp.com)