PayPay NASDAQ: PAYP reported continued revenue and earnings growth in the second quarter of fiscal 2026, supported by higher-margin online payment activity, expanding credit balances and growth across its financial-services businesses. The company said it was broadly revising its full-year outlook after first-half results exceeded its initial expectations.
Total revenue rose 27.7% from a year earlier to JPY 118.1 billion, above the upper end of the company’s quarterly guidance range. Adjusted EBITDA increased 54.8% to JPY 42.1 billion, while the adjusted EBITDA margin expanded to 36%.
Profit for the period was JPY 18.4 billion, down from the prior-year quarter because the comparable period included a one-time tax benefit related to net operating losses. Excluding that item, CFO Wataru Kagechika said profit for the period increased year over year.
Payments Growth Continues Despite Weather Effects
Payment-segment revenue increased 26.8% year over year, while gross merchandise value, or GMV, grew 20% to JPY 5.56 trillion. Kagechika said GMV growth slowed from 23% in the first quarter, partly because prolonged rain in September affected offline payments. The company also cited a pullback after a temporary increase in demand in the prior year tied to changes in Japan’s hometown tax donation system.
Management said the underlying GMV growth trend was unchanged after excluding those effects. Payment revenue growth outpaced GMV growth, aided by an increasing online mix, credit-card financing growth and changes to the company’s rewards program in June.
The online GMV share rose three percentage points year over year to 19%. PayPay’s net take rate, including payment-related revenue, increased to 1.74% from 1.64%, while gross take rate rose to 2.32%.
However, Kagechika told analysts that the second-quarter take rate included certain favorable factors, including municipal-service revenue and the rewards-program revision. The company expects take rates in the third and fourth quarters to be below the second-quarter level.
PayPay also expects temporary pressure on payment-fee mix as it strengthens controls on some online merchants in response to cybersecurity and fraud risks. Kagechika said the company has temporarily closed some accounts or limited activity while merchants implement countermeasures. He noted that affected online merchants generally carry higher take rates and could return after addressing security issues.
Credit Portfolio and Financial Services Expand
PayPay Card’s active card base increased 23% year over year to 18.7 million. Credit-related card balances reached JPY 600 billion, up 26%, with revolving and installment balances increasing 25%. Cash-advance balances grew 62%, which the company attributed to efforts to encourage use of that product.
The company has expanded credit approvals and increased limits for a broader range of users based on its proprietary credit model, which uses PayPay payment data. Kagechika said this intentional expansion increased credit losses and provisions during the quarter, but remained profitable after considering those costs.
PayPay reported a delinquency transition rate of 2.7% and a stage-three balance, or nonperforming-loan, ratio of 5.6%. Management said losses related to the credit initiative were expected and that the loss rate had begun to decline, as many problem loans tend to emerge within the first four to six months.
The financial-services segment posted 37.7% revenue growth, with interest income rising 70%. PayPay said this reflected loan-balance growth and higher policy interest rates. The company’s banking unit increased deposits 16% to JPY 2.43 trillion and loans 37% to JPY 1.4 trillion. Mortgage loans totaled JPY 1.02 trillion.
Loan yield reached 2.32%, and the loan-deposit spread improved sequentially, helped by a more favorable loan mix. The company said it plans to remain disciplined in residential mortgages while expanding higher-yielding consumer and business lending.
Costs, Margins and Balance Sheet
Total transaction costs rose 35.3% to JPY 28.1 billion, faster than revenue, primarily because of higher interest expenses following policy-rate increases. The total transaction-cost ratio increased to 23.8% of revenue from 22.5% a year earlier.
In financial services, higher deposit rates reflected cumulative policy-rate increases of 50 basis points in December 2025 and June 2026. Kagechika later clarified that approximately JPY 0.8 billion of the increase in financial-services interest expense from the first quarter to the second quarter resulted from an accounting-classification change in segment reporting and was eliminated in consolidation.
Operating profit margin improved 5.9 percentage points to 28.1%. Operating expenses increased 18%, compared with 28% revenue growth, as the company controlled reward, outsourcing and advertising costs. During the quarter, other expenses as a percentage of revenue declined by 2.3 percentage points in payments and 1.4 percentage points in financial services.
Total assets increased to JPY 5.7 trillion at the end of the second quarter from JPY 5.2 trillion at the end of the previous fiscal year, primarily reflecting higher card receivables and loans. The company also cited an increase in securities following its August acquisition of shares in Seven & i Holdings. Adjusted return on equity rose to 18.5% from 14.9% in the prior fourth quarter.
Outlook and Customer Engagement
For the third quarter, PayPay expects underlying business trends to remain largely unchanged, although it anticipates normalization in financial-services interest-income growth because of a difficult comparison with a sharp increase in corporate deposits a year earlier.
The company expects fourth-quarter adjusted EBITDA margin to be lower than the third-quarter level, citing potential additional policy-rate increases, higher funding costs for card and banking operations, and seasonal increases in taxes, charges and promotional spending.
PayPay said registered users exceeded 76 million, while monthly active users were about 42 million, leaving room to deepen engagement. The company reported 44.3 million eKYC users as of the end of September, equivalent to 59% of registered users.
Management said its strategy is to begin customer relationships through payment activity and then cross-sell banking, lending, card and securities products. PayPay Bank had 10.4 million accounts, up 11% year over year, while PayPay Securities accounts increased 28% to 1.88 million.
About PayPay (NASDAQ:PAYP)
PayPay is a Japan-based financial technology company that operates a digital payments and financial services platform. Its core offering is a mobile wallet that enables consumers to make cashless payments at participating retailers, restaurants, online merchants and service providers using smartphones and QR codes.
The company's platform also supports person-to-person money transfers, bill payments, loyalty and rewards programs, and related digital financial services. PayPay has expanded its ecosystem through integrations with merchants and other businesses, helping facilitate electronic payments for consumers and companies across Japan.
PayPay was launched in 2018 and was established through a partnership involving SoftBank and the corporate group now known as LY Corporation.
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