SoftBank’s PayPay eyes $20 billion valuation ahead of US IPO

Japan's SoftBank Group Corp is planning an initial public offering (IPO) of its digital payments unit PayPay in the United States as soon as December, two people with direct knowledge of the matter said, according to Reuters.

The Japanese conglomerate has been speaking to institutional investors since mid-September regarding potential valuations ahead of the highly anticipated IPO.

The conversations indicate that investors are going to value PayPay at above 3 trillion yen ($20 billion) and that 2 trillion yen is seen as the baseline, the sources said.

The valuation discussions, which were first reported by Reuters, come as optimism around PayPay's growth potential grows and SoftBank eyes ways to monetise one of its biggest stars in the financial technology space.

Spokespeople for PayPay declined to comment on the possible deliberations, and the sources spoke on condition of anonymity as the information is not public.

The final pricing and other details of the IPO were being discussed and would be contingent on market conditions, they warned.

Market momentum and investor optimism

The IPO intentions come at a time when the US market for new listings is regaining traction. Companies raised $24 billion in first-time share sales in the third quarter, making it the busiest period for IPOs since late 2021, according to Dealogic.

Investors see PayPay as a possible high-profile entrant due to its dominant position in Japan's digital payments market and its ties to SoftBank's ecosystem.

The baseline valuation of approximately 2 trillion yen represents PayPay's established domestic business, but some investors believe the company's global expansion aspirations warrant a higher amount.

One insider stated that PayPay's ability to provide a viable route to international growth will be critical to maintaining a premium value.

"The key focus going forward will be to what extent overseas expansion can be realistically pictured as a growth story, given the lack of business foundations not only in the US but also in Asia," a source added.

From cash to QR codes: PayPay's transformation of Japanese payments

PayPay has played a key role in Japan's shift away from cash, which was previously the preferred payment option among customers.

The corporation has accelerated the use of digital payments by providing refunds and other incentives through its mobile app.

PayPay is now Japan's market leader in QR code payments, having expanded its services to include banks and credit cards.

The company's efforts are consistent with the Japanese government's aim to raise the country's cashless payment ratio, which topped 40% last year but remains far lower than the 80% observed in South Korea and China.

SoftBank's telecoms unit announced that the operational profit at its finance sector, which includes PayPay, more than doubled to 18.1 billion yen in the April-June period. "Structural profit improvement is progressing, and future growth can be anticipated," said Yukari Housui of SBI Securities.

Expanding abroad and into crypto

Last month, PayPay announced that users would be able to make payments abroad, beginning with South Korea, a popular destination for Japanese tourists.

The move is a first step toward establishing a foreign presence, which might support a greater valuation before the IPO.

The corporation is also expanding into the bitcoin market. PayPay recently bought a 40% share in Binance's Japanese business and wants to launch new crypto-related services, indicating a desire to expand its financial capabilities.

Ownership structure and broader IPO trends

PayPay is owned by various SoftBank organisations, including wireless unit SoftBank Corp., investment division Vision Fund, and internet business LY Corp., a joint venture between SoftBank and South Korea's Naver Corp., in which SoftBank holds a stake.

The US listing plan from SoftBank is in line with the trend among Japanese firms to seek higher valuations offshore. Over the past five years, roughly 20 Japanese companies have been listed in the US, some of which have subsequently struggled and been delisted.

Similarly, Japan-based Round One (best known for its themed entertainment centers) aims to boost its global brand awareness and could find growth in the US for two subsidiary listings post overseas listings with the help of overseas listings.

Investors will watch closely as SoftBank progresses with plans for PayPay's IPO to see whether Japan's hottest payments app can leap from a national fintech darling to an international digital finance player.