The Buy Now Pay Later (BNPL) Sector has seen a new acquisition in its space by the giant American financial technology company PayPal Holdings. PayPal acquired the Japanese BNPL company Paidy for ¥300 billion or $2.7 billion, all in cash. The transaction is aimed to be concluded by Q4 2021 by passing through regulatory and financial approvals first. The advisers for both sides include Bank of America and White & Case for Paypal. On the other side, Paidy will be supported by Goldman Sachs, Cooley LLP, and Hamada & Matsumoto.

PayPal has grown as a colossus of the digital payment revolution for the past 20 years. Paypal’s advantage in integrating technology within financial services, commerce, apps and web development has allowed its growth to be stable, secure, and exponential. PayPal's established platform has reached more than 400 million consumers and merchants within 200 markets. It is an alternative to banks' cross-border payment system. On the other hand, Paidy is a Japanese deferred online payment service company founded in 2008; it has recently widened its services into physical shop offerings.

The Rationale of the Paidy Acquisition

The strategic acquisition of Paidy will allow PayPal to have a steppingstone in Japan and beyond in the growing Asian market. Additionally, it strengthens the growing interest in the BNPL sector. PayPal has recently launched a platform called “Pay in 4” to Australians. Similar services have been established previously in the US, UK and France. This service includes different solutions by taking out interest’s, payment fees, and sign-up fees.

Japan possesses the third largest eCommerce market globally with a growing BNPL domestic market adding to Paypal’s growing cross-border market share by Japanese users. Furthermore, the acquisition allows Paypal to enter the affluent sector of the deferred payment services as an alternative to the giants of credit cards. A strategic play of advancing into the non-credit card infrastructure plays with a new flow of money entering Paypal’s network. When the acquisition is finalised, Paidy will continue its independent growth on all aspects of its business, gain an advantage in expertise on the domestic front – while contributing to PayPal’s data intelligence and Asian strategic expansion.

What differentiates Paidy from its different competitors is that it has a platform that offers a monthly payment instalment service called "3 Pay''. It allows users to buy online and pay a consolidated bill through their banks or partner stores each month. The 6 million users and 700,000 merchants are an asset for this purchase as the integration with PayPal, other digital and QR wallets with Paidy connecting online and offline. The recent launch of Paidy Link goes in that addition with the ability to link straight into digital wallets, with PayPal being the first partner.

To determine the creditworthiness of each client, Paidy will use a machine learning process to verify consumer behaviour related to purchase and approve the transaction straight into the merchants. Paidy's two-sided payment service allows itself to be the middleman for both consumers and merchants. Paidy's success follows the system for consumers to feel comfortable and safe to purchase goods and services online. For merchants, gain KPI (key performance indicators) advantages in conversion rates, order values, and repeat purchases.

The Valuation of the Transaction

Valuation wised, the deal matches recent BNPL transactions based on the gross merchandise volume and user base. Its GMV (growth merchandise value) is expected to grow to $1.5 billion with an integrated 5% rate. PayPal acquisition represents a 41x revenue payment of Paidy, which follows the recent valuation for Square's acquisition of Afterpay. A record acquisition for the space and of the Australian company at $29 billion. Most analyst sees a vast potential growth since only 30% of transactions in Japan are not cash-based. The potential development of digital commerce and payments in Asia should allow an exponential growth of BNPL habits as an alternative to credit cards. Paidy has a potential of $75 million in revenue this year through its different assets in capitalising on the market share of both bank and non-bank actors. An example of such growth potential can be seen in e-commerce sites where Paidy is accepted by all the mastodons, including Amazon, Shopify and Rakuten.


Lastly, the BNPL industry has vast potential. An expected global market industry will reach $3.9 trillion by 2030 with a CAGR (compound aggregate growth rate) of 45.7%. The growing e-commerce, reflation environment and inclusion of Millennials & GenZers in the economy will accelerate consumers' purchase of goods and services while allowing payment flexibility. Therefore, this acquisition makes sense for Paypal to have a competitive advantage against its competitors that are Square, Mastercard and Visa.

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