PayPay’s QR Revolution: Uplifting SoftBank’s Gloom

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Cash remains the preferred payment option in Japan, despite digital alternatives dominating other Asian nations. However, the pandemic has led to a surge in cashless transactions, benefiting SoftBank’s payments business, PayPay.

Cashless payments increased by nearly a fifth last year, reaching ¥111tn ($745bn), accounting for around a third of total payments. The most widely adopted form of digital payment in Japan is through QR code scanning on mobile apps.

Various businesses, including global giants Apple Pay and Google Pay, as well as Line Pay, Mercari Pay, and Rakuten Pay, are competing for a share of this rapidly growing market. Among them, PayPay has emerged as the dominant player, capturing about two-thirds of the QR-code payments market in Japan. The telecoms arm of SoftBank, along with holding companies and a fund associated with the controversial tech investment group, own the majority of PayPay.

However, securing victory has come at a high cost, with steep marketing expenses and intense competition leading to sizable investments in cashbacks and advertising. Additionally, the competitiveness of the market restricts the commissions that payments companies can extract from merchants.

In recent weeks, SoftBank’s shares have dipped as the focus of investors shifted away from its recently listed chip designer Arm towards other ventures such as its Vision and Latin American funds. During the latest quarter, almost three-quarters of SoftBank’s companies witnessed a decrease in value.

Despite the challenges, PayPay distinguished itself by reporting its first-ever profit before interest, taxes, depreciation, and amortization for the June quarter. With the Japanese mobile payments market still in its early stages, it is projected to grow at an annual rate of 25% until the end of 2027, providing ample room for PayPay to expand.

SoftBank’s major Japanese mobile arm supports PayPay by encouraging its subscribers to use the service. While the current $7bn valuation may be subject to speculation, an initial public offering would undoubtedly attract attention from investors.

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