Shulou(Shulou.com)11/24 Report--

PayPay, a payment app, has become one of the success stories of Masayoshi son, founder of Japan's Softbank Corp. Group, with its users growing from zero to more than 60 million in five years. The app is currently seeking to maintain double-digit growth with the help of Softbank Corp. 's other investment companies, according to the company's co-chief operating officer.

PayPay, which is based in Tokyo, is dominant in cashless payments in Japan, thanks to its aggressive subsidy strategy and Softbank Corp. 's support in signing contracts with merchants across Japan. Shortly after its debut in 2018, the company invested 10 billion yen ($67 million) in cash return activities within 10 days, winning the favor of millions of users and even causing multiple outages of the PayPay system.

The startup is seen as Softbank Corp. 's next IPO target and has a 2/3 share of the QR code payment market in Japan, where cash still dominates. According to Masao Yasuda, PayPay's co-chief operating officer, partnering with Line, a Japanese instant messaging service owned by Softbank Corp. 's telecommunications division, will help PayPay win another 30 million users in the next few years.

Son encourages portfolio companies to work together, and PayPay is one of the few productive initiatives in the strategy. Softbank Corp. holds a majority stake in PayPay through his telecoms division, its holding company and a second vision fund. The company initially adopted India's Paytm payment technology, and the first vision fund invested in Paytm in 2017.

As of March, PayPay's total merchandise trading volume (GMV, a key measure of performance) exceeded 10 trillion yen, up 34 per cent from a year earlier. 'This is the rate of growth that PayPay wants to maintain, 'Mr. Yasuda said. He said the company would use its range of services from credit cards and insurance to stock trading to boost trading and user growth.

The rapid growth of PayPay has also benefited from the Japanese government's efforts to encourage digital payments, although the Japanese still prefer to use cash. Cashless payments accounted for about 36% of total consumer transactions in 2022, according to Japan's Ministry of Economic Affairs. Although this figure lags behind neighboring countries, it is more than twice as high as it was a decade ago.

Kirk Boodry, an analyst at Astris Advisory, the consultancy, calculates that last year PayPay bought a stake in PayPay Card and Softbank Corp. 's telecoms division valued the start-up at about Y1,000bn in an insider transaction. Analysts say that if investors agree to the valuation, the payment company's IPO will benefit Softbank Corp..

"they did very well on PayPay because before the start of the business, they were little known in fintech," says Mr Budley. "now they have managed to capture the majority of the market."

Payment by scanning QR codes is widely used in China, including WeChat Pay and Alipay, and it is also becoming more and more popular in Japan. Compared with the commission charged by credit card suppliers, the lower commission continues to attract merchants.

However, PayPay is paying more attention to its financial situation. The company now charges retailers and for the first time reported earnings before interest, tax, depreciation and amortization in the second quarter ended in June.

Mr. Yasuda said the company wanted to increase the average amount spent on personal accounts through PayPay, but declined to elaborate further. PayPay is also considering expanding to corporate accounts and may provide overseas use through cooperation with local payment apps, he added.

Efforts to expand PayPay coverage will face stiff competition from Rakuten, which offers a range of similar services, including Rakuten payment, credit card and brokerage services. The payment market is also becoming more crowded, while credit cards continue to dominate high-value transactions such as luxury purchases.

"We are gradually entering a different stage of growth," Mr. Yasuda said. PayPay will continue to invest, "but at the same time, we want profitability to become a sticky trend for us."

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