Daily Management Review

SoftBank Supported PayPay Gaining Ground Fast In Digital Payments Arena In Japan


SoftBank Supported PayPay Gaining Ground Fast In Digital Payments Arena In Japan
The Japanese payments app PayPay, which is owned by deep-pocketed SoftBank, is taking large steps in further extending its footstep in the Japanese market with the company deploying a shoe-leather sales force of thousands for targeting restaurants, drugstores and supermarkets. With more than 3 million merchants enrolled with the company, this is an industry-leading number when considering that there are about 5.3 million businesses, according to government data.
"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.
In addition, PayPay has also emerged as one of the major tools for the success of a government-supported consumer shift away from cash with Japan grappling with deep labour shortages and need for social distancing during the Covid-19 pandemic.
Even though the company was a late entrant to the digital payments industry, it was driven by cash-back campaigns supported by SoftBank. For example, in one of the campaigns, the company gave away 10 billion yen ($90 million) in just 10 days.
PayPay is losing money because of its strategy of burning cash on such rebates and smaller businesses not being charged for its payment service – at least for now. But the company also aims to offer loans, deposits and share trading services to customers through its app which entails the company being more exposed to the country’s finance industry which is heavily regulated.
In the two and half years since its launch, the app has attracted more than 39 million users. In the same period a merger between its internet business and a major PayPay competitor - chat app Line was completed by SoftBank in March. Millions of new users have been added to the app since them.
The company is also poised to raise its merchant handling fee for smaller firms that is currently set at zero. The aim of the company is to cover the costs of operations and yet keep the fees as low as possible, Baba said.
According to analysts, the survival of the service will critically depend on how the core business of the company fares at that point. For many merchants the proposed costs of using the app is lower than the perceived benefits.
"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.
The business model is based on the one that is followed by Ant Financial, an affiliate company of Alibaba, the most valuable investment of SoftBank, with the 730 million users of Alipay in China being allowed to borrow money and check their credit score as well as purchasing wealth management products directly through that single 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.
 There are also concerns that PayPay, under such a business model, could attract regulatory scrutiny as is being faced by Alipay in China and is being forced to undergo a restructuring of its business.