Dive Brief:

• San Jose, California-based PayPal announced in a Tuesday press release it has agreed to buy the Japanese payments platform and buy now-pay later company Paidy for 300 billion yen, or about $2.7 billion, building on its cross-border e-commerce business in the country.
• Using Paidy services, Japanese consumers can buy online and then make payments toward the bill at convenience stores or via money transfer, PayPal said. Paidy caters to about six million registered users and 700,000 merchants, connecting them to each other online and offline, and to payment channels like 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," PayPal's Japan Head Peter Kenevan said in a statement. Consumers in Japan make up the third-largest e-commerce market in the world, according to PayPal.

Dive Insight:

Tokyo-based Paidy, which has about 200 employees, rates consumer creditworthiness based on its own proprietary technology, underwrites transactions and then guarantees payment to merchants, the release said. Those are the kinds of digital credit services that have been catching on worldwide, specifically in the form of the global BNPL trend.

"We see large synergy potential between the companies’ respective networks of consumers and merchants, and strengthening of PayPal’s position in Japan, a large, high-growth e-commerce market," analysts from financial firm William Blair said in a report today regarding the acquisition.

Spending using BNPL payment options is expected to jump nearly four-fold to $995 billion worldwide by 2026, from $266 billion this year, according to Juniper Research.

The popularity and potential value of buy now-pay later was recently underscored by Square's announcement in May that it would pay $29 billion to buy Australian BNPL pioneer Afterpay. The trend caught on in the Asia-Pacific region initially, and in Europe, but has been making inroads in the U.S. over the past year too. 

Consumers value the BNPL option because it allows them to avoid the interest charged by credit cards, according to a recent CB Insights report on the phenomenon, though some of the BNPL models also can sock consumers with late fees if they miss payments.

"We attribute the growth of BNPL to much-improved technology, merchants looking for incremental customers, millennials/Gen Z seeking alternatives to traditional financial institutions; streamlined, consumer friendly offerings; and well-executed go-to-market strategies at large BNPL players," the William Blair analysts said in their report.

PayPal also buttressed its position in the e-commerce sphere earlier this year with the acquisition of Happy Returns, which facilitates online returns of purchased merchandise. E-commerce activity surged last year as the COVID-19 pandemic kept consumers at home and led them to shopping online.

PayPal's purchase of Paidy will "expand PayPal’s capabilities, distribution and relevance in the domestic payments market in Japan," the company said in the release.

The Paidy business will continue to operate as it has under its same brand, and will be led by Russell Cummer, Paidy's executive chairman and founder, as well as Paidy CEO Riku Sugie, the release said.

The transaction is expected to be completed by the end of the year, assuming closing conditions and regulatory approvals are finalized by then.