Digital Payments

Paidy Tries To Simplify Mobile Payments — And Please Merchants While Doing So

A consumer can own multiple credit cards and live in a highly technological society and still want to pay via a method that can come pretty close to resembling cash. That is among the emerging lessons offered by Paidy, which in late 2014 launched Japan’s first instant post-pay credit service for eCommerce consumers.

The appeal of that payment method — to both consumers and merchants — and the ways it stands apart from cash on delivery and carrier billing were among the topics that Paidy CEO and Co-founder Russell Cummer discussed with PYMNTS in a recent interview.

Paidy recently made news by announcing that it had raised $55 million in a round of funding led by ITOCHU Corp., with participation from Goldman Sachs. The latest round of fundraising, combined with a Series A and B round, gives the company a total amount of $80 million capital raised to date. The fresh capital and the relationship with ITOCHU, a Japanese conglomerate, will help Paidy gain new merchants and develop new payment features and tools, Cummer said.

The Product

So, how does Paidy work?

Consumers who go online to buy products from participating merchants can select the Paidy option during checkout. They use mobile phone numbers and email addresses for the transaction, accept the fee and then they receive a code via SMS that is used to complete the purchase. Cummer said that “95 percent” of the company’s transactions take place via in-app purchases or the consumer’s native mobile platform.

Consumers can also opt for an installment plan, spreading payments out for up to 36 months. Payments for the purchase come via a single monthly bill that can be settled at a convenience store, by bank transfer or via auto debit. Allowing consumers to settle the bill in such a way is Paidy’s way of replicating the unique consumer desire in Japan to pay at convenience stores, and of enabling merchants to offer a new payment option without moving too far away from existing systems and customs.

The company has more than 1.4 million accounts, Cummer said — a number Paidy hopes to increase to at least 11 million by 2020.

The Appeal

So — why does Paidy work, and work in Japan?

After all, the average Japanese consumer has 3.2 credit cards, Cummer said during the PYMNTS interview earlier this week. “But the use of cards (in Japan) is different from in other development countries,” he said. “There is still a lot of cash” being used for both online and in-store shopping.

Cultural values also play a role in payments, and that’s certainly the case in Japan. Unlike the average U.S. consumer, told virtually since birth about the delights of seemingly unlimited credit, consumers in the Asian country (like in Germany) tend to be more frugal. According to Cummer, that can translate into a concern among Japanese consumers that they will overspend when using credit cards — not an unreasonable worry, given the mountain of evidence that supports the idea globally.

Security, though, also plays a role in Paidy’s growth and prospects, Cummer said. Every new data breach gives more consumers another reason to distrust handing over their payment card details to merchants. That worry can be especially acute for merchants new to a consumer, and for online purchases.

Besides all of that, the average Japanese consumer is very familiar with mobile devices, and using them for one- or two-click shopping — an experience Paidy strives to replicate, in contrast to the extra steps often required of credit card users, who may, for instance, have typed in shipping addresses and security codes and expiration dates, depending on the merchant.

Those factors serve to dampen the enthusiasm for cards when it comes to eCommerce in Japan. Cummer said that nearly 45 percent of online shopping in that country is done without cards, with consumers preferring cash on delivery or paying for those purchases at convenience stores, or opting to use mobile devices. That requires merchants to often float cash for products not yet paid for.

The use of cash, in fact, leads to other problems — one of which is that it can be hard to underwrite a consumer, as Paidy does, when they have no significant credit history. But Paidy uses technology, including machine learning and the analysis of big data, to “build a picture of the consumer and his behavior” from that shopper’s first purchase via Paidy. The company, which acts as lender to the merchant, can also take advantage of the relatively high amount of well-organized credit data in Japan.

Payment Advantages

One way of doing so is via cash on delivery. Paidy has an advantage over that payment method, Cummer said, because returns are easier via his company’s API, and because merchants are guaranteed payments from consumer purchases because Paidy underwrites transactions.

As well, he said, not every situation is welcoming for card payments. Consider one of the stereotypical images of Japan: A person on a tightly packed train or subway, where personal space is all but nonexistent, making it a genuine chore to take a card from a purse or wallet and then type in all the data required for a transaction. “It can be hard to make a card purchase,” Cummer said.

Paidy can also reduce friction for merchants, he said, mainly because consumers with a Paidy account can use it to pay at different retailers, limiting hurdles. And unlike carrier billing — which essentially limits consumers' spending according to the limits of their accounts or payment cards on file — Paidy basically offers “new credit issuance,” Cummer said. “It allows consumers to spend more and merchants to sell more. We can take a lot of market share from cash on delivery.”

Cummer would not detail how much consumers spend with Paidy, but offered that the average order value for the typical consumer runs into the “hundreds of dollars a month.”

Cummer also would not talk much about what new partnerships or deals Paidy might seek in order to expand its customer base and merchant count, but the recent funding round signals that those plans won’t exactly be small.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.