U.S. payments giant PayPal Holdings Inc announced Wednesday it would acquire Japanese buy now, pay later firm Paidy in a 300 billion yen ($2.7 billion) principally cash deal, to expand its business in Japan.
Japan is the third largest e-commerce market in the world, presenting the opportunity for PayPal to expand its domestic relevance in the payment business in the East Asian country market.
The deal, which is expected to be concluded in the fourth quarter of 2021, will be minimally dilutive to PayPal’s adjusted earnings per share in 2022. It will also complement PayPal’s existing cross-border ecommerce business in Japan.
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“Paidy pioneered buy now, pay later solutions tailored to the Japanese market and quickly grew to become the leading service, developing a sizable two-sided platform of consumers and merchants,” said Peter Kenevan, vice president, head of Japan at Paypal. “Combining Paidy’s brand, capabilities and talented team with PayPal’s expertise, resources and global scale will create a strong foundation to accelerate our momentum in this strategically important market.”
The deal has added to the BNPL (buy now pay later) frenzy being largely embraced by major players in the payment industry.
Last month, Square announced an agreement to buy Australian BNPL success story, Afterpay, in a $29 billion deal. Amazon also said it reached a partnership deal with Affirm, to offer buy now pay later services.
Japan, like many other countries, is enjoying a pandemic-led boom in the payment industry. PayPal said in an investor presentation that the acquisition will help it take advantage of Japan’s online shopping volume, which has more than tripled over the last 10 years to some $200 billion value.
Paidy has more than 6 million registered users. Using proprietary technology to score creditworthiness, it offers payment services that allow Japanese shoppers to make purchases online, and then pay for them each month at a convenience store or via bank transfer.
The company has been using innovative technology to widen its market’s reach. Among them is the 3-Pay monthly installment offering that has helped Paidy to establish strategic relationships with leading global brands and online marketplaces.
Paidy believes its integration with PayPal and other digital and QR wallets through Paidy Link expands Paidy’s reach to online and offline merchants beyond its platform.
“There is no better home for Paidy to continue to grow and innovate than PayPal, which has been removing friction from online shopping for more than 20 years,” said Russel Cummer, founder and executive chairman of Paidy. “Japan has been a vibrant environment for our growth to date and we’re honored to have our team’s hard work and potential recognized by a global leader. Together with PayPal, we will be able to further achieve our mission of taking the hassle out of shopping.”
Japanese consumers are gradually making a shift from their traditional use of cash, embracing online payments, especially in the cities.
“One of the notable things about Japan’s BNPL market compared to the United States or Europe is that most users clear their outstanding balance by the end of the month in one payment. In Japan, accumulating debt is more frowned on,” said Eiji Taniguchi, a senior economist at think tank Japan Research Institute Ltd.
The boom in BNPL business in western countries was largely spurred by federal stimulus checks, which boosted spending among online consumers.
PayPal, which is a dominant player in the payment industry, is also considered a leader in the BNPL market with presence in Australia, where it operates with smaller companies such as Sezzle.
The BNPL market boom comes from a simplified method of charging merchants a fee to offer small point-of-sale loans which shoppers repay in interest-free instalments, bypassing credit checks. Paidy’s acquisition will augment PayPal’s 400 million customer base, which will be a major boost to its push to grab a larger share in the emerging industry.
Paidy backers include Soros Capital Management, Visa Inc. and Japanese trading house Itochu Corp. The company will continue to operate its existing business and maintain its brand after the acquisition. Founder and Chairman Russell Cummer and CEO Riku Sugie will continue to hold their roles in the company.
“Paidy is just at the beginning of our journey and joining PayPal will accelerate our plans to expand beyond ecommerce and build unique services as the new shopping standard,” said Riku Sugie, president and CEO of Paidy. “PayPal was a founding partner for Paidy Link and we look forward to working together to create even more value.”