PayPay: QR the one to lighten SoftBank’s gloom

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Cash is still king in Japan. It remains the preferred payment option even though digital alternatives dominate some other Asian nations. But cashless transactions are surging, thanks to a nudge from the pandemic. SoftBank stands to benefit from the shift, via payments business PayPay. 

Cashless payments rose almost a fifth last year to hit ¥111tn ($745bn), around a third of the total. Payments where users scan a QR code from a mobile app are the most widely adopted form of digital payment.

Businesses are vying for a slice of the fast-growing market. They include global giants Apple Pay and Google Pay and the likes of Line Pay, Mercari Pay and Rakuten Pay. 

Among them PayPay has emerged as a winner. It has garnered about two-thirds of Japan’s QR-code payments market. The business is majority-owned by the telecoms arm of SoftBank and by holding companies and a fund linked to the controversial tech investment group.

Victory has been expensive. Marketing costs are steep. Fierce competition means splurging on cashbacks and advertising. It also holds back commissions that payments companies can extract from merchants.

SoftBank shares have slipped in the past month as enthusiasm ebbed for its recently listed chip designer Arm. The focus of investors has switched to the group’s other ventures, including its Vision and Latin American funds. Almost three-quarters of its companies lost value in the latest quarter.

PayPay set itself apart by reporting its first-ever profit before interest, taxes, depreciation and amortisation for the June quarter. The Japanese mobile payments market is still a nascent industry. It is estimated to grow at an annual rate of 25 per cent to the end of 2027. That leaves room for PayPay to grow.

SoftBank’s big Japanese mobile arm supports PayPay by encouraging subscribers to use its services. A valuation of $7bn has no greater standing than business gossip for the moment. But an initial public offering would merit attention from investors.