Dentist Quits Samsung to Disrupt South Korean Payments System

(Bloomberg) -- Lee Seung-gun's parents told him to get his sanity checked when he quit his secure job as a dentist with the hospital arm of Samsung Group to found a mobile apps startup.

Seven years and eight failed apps later, the founder of Viva Republica has a bona fide hit with payments service Toss and its 8 million registered users ringing up $1.4 billion of transactions a month. On Monday, Lee's company said in statement that it won $40 million in funding from GIC Pte. and Sequoia China, bringing the total raised by the Seoul-based startup to $116 million.

Toss, which is similar to Venmo and lets users send each other as much as 2 million won ($1,822) a day, made a splash in South Korea by cutting the time needed for transfers to seconds. It helped upturn a banking system clogged with security protocols and dominated by the nation's banks. The app's success is a rarity in a country where family-controlled chaebol such as Samsung and LG rule over the economy.

“People fear failure in Korea because failures are rarely forgiven,” said the 36-year-old Lee. “I had security against failure, but I wasn't happy.”

As most disrupters find, it hasn't been a smooth path for Lee. He put 150 million won of savings from his dental career toward Viva Republica and watched as one app after another failed, including one that lets you file an online petition and another to help with selfies. At one time he had just 20,000 won in the bank and had to plead with the spouses of unpaid employees to keep them working.

Toss emerged from a legal gray area where there were no clear regulations and didn't really take off until 2015 when the country's financial watchdog ruled such person-to-person transfers were legal. After that he formed partnerships with major financial institutions include Kookmin Bank and Samsung Card, an affiliate of his former employer.

And with its success has come competition as Naver Corp., operator of the biggest local portal, and Kakao Corp., which created the country's most popular messenger app, both moved into payments.

The market for online person-to-person payments grew 417 percent last year from 2016 according to Bank of Korea data. Toss said it handled about 70 percent of the average 35 billion won transferred per day last year and the company has expanded into other financial services such as credit score management.

“We're seeing more and more banks speeding up their online transactions after the emergence of pay apps like Toss,” said Kim Kyong-hwan, who researches startups at South Korea's Sungkyunkwan University. “They are forcing the country's existing financial players to change the way they do business and rightly so because too many regulations have long hamstrung their digital transformation.”

Toss, which has also gotten backing from PayPal Holdings Inc., Goodwater Capital and Altos Ventures has been such a success that last year Lee joined a delegation of chaebol executives accompanying President Moon Jae-in for his first summit with Donald Trump.

A graduate of prestigious Seoul National University, Lee came to re-assess his career while treating people on a remote island as part of his mandatory military duty. It was then that he realized, iPhone in hand, that he could reach far more people with an app than a hospital.

But leaving one of the nation's conglomerates is not easy as their financial strength and stability tend to absorb the brightest students and offer a security that startups struggle to compete with. That meant Lee had to find a niche that the chaebol were either too complacent to explore or too slow to capitalize on. He found his specialty when he looked at the inefficiencies in South Korea's payments system.

“Sending money was such a pain in Korea,” Lee said. “So I just wanted to get rid of my problem. Now I'm glad my app's doing the same thing for others.”

--With assistance from Jungah Lee.

To contact the reporter on this story: Sam Kim in Seoul at skim609@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan

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