SoftBank PayPay Leads the Race for Digital Payments in Japan

Inside the $ 7 billion merger of Sequoia Financial and Wealthstone Advisors

Burning cash on such rebates and – for now – not charging smaller businesses for its payment service, PayPay is losing money. But the company also wants to funnel customers to loans, deposits and shares trading on the app, entailing increasing exposure to the highly regulated finance industry. Late to payments, SoftBank drove uptake of PayPay through cash-back campaigns. In one prominent example, it gave away 10 billion yen ($90 million) in 10 days. It has attracted more than 39 million users in the two and a half years since launch, and SoftBank completed a merger between its internet business and a major PayPay competitor – chat app Line – in March. Since then, PayPay has added millions of users.

“We got rid of the reasons – like it being expensive or a hassle – to not introduce PayPay,” Hajime Baba, PayPay’s chief operating officer, said in an interview. Owned by deep-pocketed SoftBank (9984.T), PayPay has deployed a shoe-leather sales force of thousands to target restaurants, drugstores and supermarkets, attracting more than 3 million merchants, an industry-leading number in a country with about 5.3 million businesses, according to government data.

PayPay is emerging as key driver of a government-supported consumer shift away from cash as Japan grapples with deepening labour shortages and the need for social distancing during the COVID-19 pandemic. “We thought there could be no harm in trying it out,” said Moeko Suzuki, who helps her father run the store, standing amid sacks of rice. “The number of young people has really increased.”

The model follows that of Ant Financial, an affiliate of SoftBank’s most valuable investment, Alibaba (9988.HK), whose 730 million Alipay users in China can borrow money, check their credit score and buy wealth-management products through the app. “We’re learning from Ant Financial how we can monetize (PayPay). They launch short term and basically they’re able to monetize short term,” Junichi Miyakawa, CEO of SoftBank Corp, said last month. “For retailers, not having a lot of cash on hand or having zero, which is the ideal, has huge benefits in terms of reducing administration,” said Michael Causton, an analyst at JapanConsuming.

How the core business fares at that point is crucial to the service’s survival. Merchants such as rice dealer Mikawaya say the benefits of the app outweigh those costs. Merchant handling fees, which are set at zero for smaller firms, will rise this year. Baba said PayPay aims to set them as low as possible while covering costs.

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