Paidy
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Here’s what your BNPL startup could be worth
It’s a two-Exchange Tuesday, everyone. First up, we’re talking fintech valuations. Next up, we’re digging into Atlanta.
Last week’s news that PayPal intends to buy Japanese startup Paidy marked the second major acquisition of a buy now, pay later (BNPL) company this year. PayPal’s news followed an even larger deal by Square for the Australian BNPL company Afterpay.
The multibillion-dollar exits provided hard market proof that what BNPL startups are building has value beyond simple operating results; major fintech platforms are willing to shell out large sums for their revenues and possible strategic value.
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Because both deals happened in 2021, they provide two data points for the value of BNPL companies operating at scale. And because both Square and PayPal provided some information to their investors concerning their transactions, we have a little bit of comparative work to do.
Let’s do a little math and figure out how much PayPal and Square investors are paying for transaction volume across both platforms. Then, we’ll peek at what Affirm is worth along similar lines. We’ll wrap with a look at Klarna’s numbers to see if there’s anything we can dig up there.
Our goal is to find out what sort of price floor or ceiling the Paidy and Afterpay deals imply, if other players in their space are matching that figure, and why. This will be fun!
What would you pay for $1 of BNPL GMV?
Square’s Afterpay deal is worth some $29 billion, a huge sum. It isn’t hard to see why the U.S. consumer- and business-focused fintech is willing to write so large a check — Afterpay does volume.
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PayPal acquires Japan’s Paidy for $2.7B to crack the buy now, pay later market in Asia
PayPal Holdings, the U.S. fintech company, announced an acquisition of Paidy, a Japanese buy now, pay later (BNPL) service platform, for approximately $2.7 billion (300 billion yen), mostly in cash, to enhance its business in Japan.
The transaction completion, including the regulatory approval, is expected in the fourth quarter of 2021.
After the acquisition, the Japan-based company will continue to operate its existing business and maintain the brand while the leaders, Paidy’s president and CEO Riku Sugie and founder and executive chairman Russell Cummer, keep their positions.
Japan is the third largest e-commerce market in the world, and so this is a significant move by PayPal to gain more market share both in the country and the region, specifically in the area of providing deferred payment services as an alternative to credit cards.
PayPal has long played nice with payment cards — users can upload details of their cards to PayPal and use it as a kind of digital wallet to manage how they pay for things online through it — but it got its start actually as a payment platform in itself, where people could pay into and out of PayPal accounts. Paidy is, in that sense, a strengthening of PayPal’s first-party rails, providing a way to “own” that flow of money on its own infrastructure, not involving the card networks.
Paidy is basically a two-sided payments service, acting as a middleman between consumers and merchants in Japan. Using machine learning it determines the creditworthiness of a consumer related to a particular purchase, and then it underwrites those transactions in seconds, guaranteeing payments to merchants. Consumers then make deferred payment to Paidy for those goods.
Paidy’s platform, which offers a monthly payment installment service branded “3-Pay”, enables shoppers to make purchases online and then pay for them each month in a consolidated bill at a convenience store or via bank transfer.
“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.
Paidy has more than 6 million registered users, and the plan is to integrate PayPal and other digital and QR wallets with Paidy Link to connect further online and offline merchants.
In April 2021, the Japan-based company launched Paidy Link, allowing users to link digital wallets with their Paidy account. PayPal was the first digital wallet partner to integrate with Paidy Link.
“PayPal was a founding partner for Paidy Link and we look forward to looking together to create even more value,” Sugie said in a statement.
“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,” Cummer said.
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Japanese instant-credit provider Paidy raises $143 million from investors including PayPal Ventures
Paidy, a Japanese financial tech startup that provides instant credit to consumers in Japan, announced today that it has raised a total of $143 million in new financing. This includes a $83 million Series C extension from investors including PayPal Ventures and debt financing of $60 million. The funding will be used to advance Paidy’s goals of signing large-scale merchants, offering new financial services and growing its user base to 11 million accounts by the end of 2020.
In addition to PayPal Ventures, investors in the Series C extension also include Soros Capital Management, JS Capital Management and Tybourne Capital Management, along with another undisclosed investor. The debt financing is from Goldman Sachs Japan, Mizuho Bank, Sumitomo Mitsui Banking Corporation and Sumitomo Mitsui Trust Bank. Earlier this month, Paidy and Goldman Sachs Japan established a warehouse facility valued at $52 million. Paidy also established credit facility worth $8 million with the three banks.
This is the largest investment to date in the Japanese financial tech industry, according to data cited by Paidy and brings the total investment the company has raised so far to $163 million. A representative for the startup says it decided to extend its Series C instead of moving onto a D round to preserve the equity ratio for existing investors and issue the same preferred shares as its previous funding rounds.
Launched in 2014, Paidy was created because many Japanese consumers don’t use credit cards for e-commerce purchases, even though the credit card penetration rate there is relatively high. Instead, many prefer to pay cash on delivery or at convenience stores and other pickup locations. While this makes online shopping easier for consumers, it presents several challenges for sellers, because they need to cover the cost of merchandise that hasn’t been paid for yet or deal with uncompleted deliveries.
Paidy’s solution is to make it possible for people to pay for merchandise online without needing to create an account first or use their credit cards. If a seller offers Paidy as a payment method, customers can check out by entering their mobile phone numbers and email addresses, which are then authenticated with code sent through SMS or voice. Paidy covers the cost of the items and bills customers monthly. Paidy uses proprietary machine learning models to score the creditworthiness of users, and says its service can help reduce incomplete transactions (or items that buyers ultimately don’t pick up and pay for), increase conversion rates, average order values and repeat purchases.
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Japanese startup Paidy raises $55M Series C to let people shop online without a credit card
Paidy, a fintech startup that enables Japanese consumers to shop online without using a credit card, announced today that it has raised a $55 million Series C. The round was led by Japanese trade conglomerate Itochu Corporation, with participation from Goldman Sachs.
The Tokyo-based startup says this brings its total funding so far to $80 million, including a $15 million Series B announced two years ago. One notable fact about Paidy’s funding is that it’s raised a sizable amount for Japanese startup, especially one with non-Japanese founders (its CEO and co-founder is Canadian and Goldman Sachs alum Russell Cummer, left in the photo above with CTO and co-founder Lee Smith).
Paidy was launched because even though Japan’s credit card penetration rate is high, their usage rate is relatively low, even for online purchases. Instead, shoppers pay cash on delivery or at convenience stores, which function as combination logistics/payment centers in many Japanese cities.
This is convenient for buyers because they don’t have to enter a credit card online or worry about fraud, but a hassle for businesses that often need to float cash for merchandise that hasn’t been paid for yet or deal with incomplete deliveries.
Paidy makes it possible for people to buy online without creating an account or using their credit cards. Instead, if a merchant uses Paidy, its customers are able to check out by entering their mobile phone numbers and email addresses. Then Paidy authenticates them with a four-digit code sent through SMS or voice. Every month, customers settle their bills, which include all transactions they made using Paidy, at a convenience store or through bank transfers or auto-debits (installment and subscription plans are also available).
The value proposition for businesses is that Paidy can increase their customer base and guarantee they get paid by using machine learning algorithms to underwrite transactions. The company claims that there are now 1.4 million active Paidy accounts, with the ambitious goal of increasing that number to 11 million by 2020 by expanding to bigger merchants and offline transactions.
In a press statement, Cummer said “We are extremely honored that Paidy’s business concept was highly valued by one of Japan’s most prestigious business conglomerates, ITOCHU. Through this tie-up, we expect to launch new merchants in order to deliver Paidy’s frictionless and intuitive financial solution to a much broader audience.”
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