Softbank & Z Holdings re-organize PayPay ownership structure
Softbank and Z Holdings announced last week that PayPay, Japan’s most successful payment service, will become a consolidated subsidiary for both entities. In addition, PayPay Card, which is currently owned 100% by Z-Holdings, will be acquired by PayPay, with the aim to enhance the competitiveness by integrating PayPay’s smartphone payment business with the credit card business.
There will be a financial impact at two levels. First, Softbank will record a re-measurement profit from the PayPay consolidation as of its effective date of October 1, 2022, the exact amount of which has not yet been determined. Second, the addition of PayPay Card will aid PayPay’s overall profitability. PayPay has been aggressively building market share since its inception, through high value consumer promotions and merchant discounts. It only started charging merchant fees from October 2021 onwards. Thus, for the fiscal year ending 3/2022, PayPay recorded an operating loss of JPY 59.6bn on revenue of JPY 57.4bn. PayPay Card’s operating profit of JPY 7.7bn will thus be welcome.
Operationally, Softbank expects increased PayPay revenue opportunities, as well as an expansion of the PayPay ecosystem and strengthened synergies within the SoftBank group from this reorganization. For the former, PayPay expects to further expand its customers base by linking its user IDs with “LINE”, owned by Z Holdings. For the latter, PayPay will expand its ecosystem by developing linkages among various Softbank and Z Holdings services including mobile, e-commerce, media, communications, and above all, the use of “PayPay Point” as a reward system.
Currently, Z Holdings, through Z Holding’s Intermediate Holding Company and Yahoo! Japan, and Softbank Corporation hold 25% each in PayPay, while Softbank Group, through the Vision Fund 2, holds 50%.
Softbank and Z Holdings will create another Intermediate Holding Company, “B Holdings”, equally owned between Softbank Corporation and Z Holding’s Intermediate Holding Company. After some accounting magic through in-kind contributions and share deliveries, both Softbank Corporation and Z Holdings will increase their ownership share to 34.9% each, with the Vision Fund reduced to 30.2%.
However, Paytm, the third party in the PayPay joint venture, holds a call option on PayPay equity, which will give it an estimated 5.5% stake once exercised, and reduce the Softbank Corporation and Z Holdings stake to 33% each, as well as the Vision Fund to 28.5%.
This article is part of our Tokyo FinTech Publication, please follow us to read more from our writers, like hundreds of readers do every day. Please also register for our short weekly digest, published some Saturdays, at the link below.