Financial firms are keeping a keen eye on IT giants Naver and Kakao that are continuing to expand in the financial services industry. The tech companies hold immense potential, as they are able to provide innovative services based on their tech capabilities and have access to massive pools of data from their e-commerce platforms.

“We will create new engines of growth with accumulated technology in the contactless market,” Naver CEO Han Seong-sook stated in a conference call after the company’s earnings for the first quarter were released in April.

Financial firms in the past did not regard “techfin companies” as a threat, as they were convinced they know the most about finance. Techfin refers to established technology firms providing financial services in collaboration with financial companies. This compares with the term “fintech,” which refers to financial firms incorporating technology to enhance the services they offer.

In the era of digitization, companies in the finance sector are realizing that tech is becoming crucial in maintaining competitiveness.

This is where big tech firms have a huge advantage, enabling internet lenders such as Kakao Bank to lead in user-oriented application designs that have attracted masses of younger users.

Tech giants such as Naver and Kakao have another competitive edge ― data accumulated from online shopping transactions as both operate e-commerce platforms.

Naver Shopping has grown into Korea’s largest e-commerce platform, with 30 million users as of the third quarter of 2019.

Kakao’s mobile gift shop, accessed by Kakao Talk users, has also seen annual transactions grow to several trillions of won.

Both Naver and Kakao have seen their stock price soar in past weeks, based on numerous factors including the potential of their businesses in finance.

Naver’s price per share climbed from 135,000, March 19, to 246,000 won May 26. Kakao’s stock price surged from 127,500 won to 279,500 won by the same day.

This has changed the order of companies by market capitalization. Kakao entered the list of top 10, pushing out traditional power houses such as POSCO and Hyundai Mobis.

As of May 29, Naver ranked fourth, accounting for 2.8 percent of market capitalization. Kakao ranked eighth, taking up 1.8 percent.

Sung Jong-wha, an analyst at eBest Securities, referred to Kakao’s subsidiaries with “contactless businesses” having immense potential.

Entering the financial industry is considered the next step for IT firms, as the easy payment market has become overheated.

This is also the path taken by Ant Financial, which was formerly Alipay, an affiliate of China’s tech colossus Alibaba Group. Ant Financial now operates a credit payment company as well as an online bank and a wealth management platform. It is the highest-valued fintech firm globally, and the most valuable unicorn company, estimated at $150 billion.