{"url_path":"/sec/payp/10-k/2026/item-5","section_key":"item-5","section_title":"Item 5 Operating and Financial Review and Prospects","topic":"sec","document":{"doc_type":"20-F","doc_date":"2026-06-30","source_url":"https://www.sec.gov/Archives/edgar/data/2080845/0001193125-26-289382-index.html","accession_number":"0001193125-26-289382","cik":"0002080845","ticker":"PAYP","issuer_name":"PayPay Corp","edgar_url":"https://www.sec.gov/Archives/edgar/data/2080845/0001193125-26-289382-index.html","primary_entity_key":"0002080845","primary_entity_name":"PayPay Corp"},"word_count":14275,"has_tables":true,"body_markdown":"Item 5. Operating and Financial Review and Prospects\n\nA.\nOperating results\n\nKey Components of Results of Operations\n\nTransaction and Service Income\n\nTransaction and service income represents revenue earned from contracts with customers after deducting certain promotional incentives and rewards extended to our merchants and credit card holders and consists primarily of payment processing fees, merchant discount fees, and service charges associated with our payment settlement services, credit card issuing and acquiring, securities brokerage, and other customer-facing financial services.\n\nFor the years ended March 31, 2024, 2025 and 2026, transaction and service income was ¥174,127 million, ¥203,595 million, and ¥251,041 million, respectively, representing year-over-year growth of 16.9% in the year ended March 31, 2025 and 23.3% in the year ended March 31, 2026. The increase in transaction and service income was driven by strong growth in both the Payment and Financial service segments, reflecting expansion in user engagement, merchant adoption, and product uptake.\n\nPayment Segment\n\nIn the Payment segment, transaction and service income is primarily derived from: (i) code-based PayPay Settlement Services, in which we earn a transaction fee by acting as a principal between the merchant and the user; (ii) Credit Payment Services, including interchange fees from PayPay Card usage and merchant acquiring activity; and (iii) Subscription revenue and value-added services, including promotions and marketing support to PayPay merchants, which are companies that our group provides the PayPay Settlement Services platform to as a method of payment in their stores, based on a contract between our group and such merchants.\n\nFor the year ended March 31, 2026, transaction and service income from external customers in the Payment segment totaled ¥220,770 million, up from ¥176,597 million in the year ended March 31, 2025 and ¥149,310 million in the year ended March 31, 2024. Revenue has continued to grow steadily over the past three fiscal years primarily driven by growth in Payment Segment GMV supported by increased adoption of PayPay Credit and PayPay Card as well as continued increase in Payment Segment Monthly GMV per MTU.\n\nFinancial Service Segment\n\nIn the Financial service segment, transaction and service income primarily includes: (i) Ancillary internet banking and platform usage fees through PayPay Bank Corporation; and (ii) Commissions and service fees earned through digital securities intermediary services from PayPay Securities Corporation, including revenues generated through the PayPay Invest platform (PayPay point management system).\n\nTransaction and service income from external customers in the Financial service segment totaled ¥30,271 million in the year ended March 31, 2026, up from ¥26,998 million in the year ended March 31, 2025 and ¥24,817 million in the year ended March 31, 2024. These increase were primarily driven by increase in the number of PayPay Bank Deposit accounts and PayPay Securities accounts.\n\nInterest Income\n\nInterest income consists primarily of interest earned on loans and advances to customers and other interest-bearing financial assets. Interest income is generated across both our Payment and Financial service segments, with distinct asset sources and yield dynamics.\n\nFor the years ended March 31, 2024, 2025 and 2026, total interest income was ¥73,884 million, ¥88,442 million, and ¥116,488 million, respectively, representing year-over-year growth of 19.7% in the year ended March 31, 2025 and 31.7% in the year ended March 31, 2026. The increase in each period was driven by expansion in our loan and credit receivable balances, as well as improved loan-to-deposit efficiency within PayPay Bank Corporation.\n\n \n\n \n\n \n\n \n\n \n\nPayment Segment\n\n76\n\n[Table of Contents](#toc_page)\n\n \n\nIn the Payment segment, interest income is primarily generated from: (i) Revolving credit, installment payments, and cash advances provided through PayPay Card Corporation; and (ii) Treasury investments and short-term placements related to settlement operations.\n\nFor the year ended March 31, 2026, interest income attributable to the Payment segment was ¥84,574 million, compared to ¥68,623 million in the year ended March 31, 2025 and ¥59,013 million in the year ended March 31, 2024. The year-over-year growth reflects the expansion of our credit card receivables including revolving, installment and cash advances, which increased from ¥1,001.9 billion as of March 31, 2025 to ¥1,276.5 billion as of March 31, 2026, net of allowances. As credit usage and repayment data accumulated, we were able to refine credit segmentation and set annual percentage rates, or APRs, based on more tailored risk assessments. From the second half of 2024, additional measures we took to optimize credit limits contributed to increased loan adoption and user engagement, supporting stable growth in interest income.\n\nFinancial Service Segment\n\nInterest income in the Financial service segment is derived from loan management services: (i) Overdrafts (for consumers and businesses), business loans, and mortgage loans offered by PayPay Bank Corporation; and (ii) Liquidity investments and other interest-bearing assets, including government and corporate bonds.\n\nInterest income for the Financial service segment was ¥32,674 million in the year ended March 31, 2026, up from ¥19,819 million in the year ended March 31, 2025 and ¥14,871 million in the year ended March 31, 2024. Growth in this segment reflects the increase in total loans and advances from ¥925.7 billion in the year ended March 31, 2025 to ¥1,236.3 billion in the year ended March 31, 2026, net of allowance. The increase in interest income was driven primarily by the expansion of loan balances of consumers, as well as the end of the Bank of Japan’s negative interest rate policy in early 2024 and the subsequent rise in benchmark rates and bond yields.\n\nAcross both segments, our NIM was 2.70% in the year ended March 31, 2026, compared to 2.61% in the year ended March 31, 2025, supported by low funding costs and disciplined pricing. As we continue to scale our lending activities and optimize the mix between payment-related credit and banking loans, we believe interest income will remain a key driver of revenue and operating leverage.\n\nGains (Losses) on Financial Instruments\n\nGains (losses) on financial instruments primarily reflect realized and unrealized fair value movements in our investment securities, derivatives, and other financial instruments measured at fair value through profit or loss , or FVTPL, as well as dividends received on equity investments. This line item also includes gains or losses on trading portfolios for client facilitation trading at PayPay Securities Corporation and foreign exchange gains or losses and valuation adjustments on trading portfolios mainly held by PayPay Bank Corporation.\n\nFor the years ended March 31, 2024, 2025 and 2026, we recognized gains (losses) on financial instruments of ¥4,641 million, ¥5,529 million, and ¥10,250 million, respectively. The steady increase over the period reflects both the expansion of our investment portfolio and changes in market conditions impacting valuation of financial assets held at fair value.\n\nThis line item is more volatile and sensitive to market dynamics than our core revenue streams. We actively manage our investment risk exposures through asset diversification, duration management, and daily monitoring, with most instruments held within risk limits established by our risk management and treasury functions.\n\nOther Operating Income\n\nOther operating income consists of ancillary income items not included in transaction and service income, interest income, or gains on financial instruments, including income that is non-recurring in nature. The items primarily include income recognized from the expiration of contractual obligations (such as unused balances and expired PayPay Point Code), government grants, and other miscellaneous items.\n\nFor the years ended March 31, 2024, 2025 and 2026, other operating income was ¥1,959 million, ¥1,512 million, and ¥2,883 million, respectively. The year-over-year increase in the year ended March 31, 2026 was due primarily to an increase in income recognized from the expiration of contractual obligations.\n\n77\n\n[Table of Contents](#toc_page)\n\n \n\nIFRS Revenue — additional reference context\n\nWe present IFRS revenue as our primary revenue measure. To enhance transparency regarding items that affect period-to-period comparability, we include reference disclosures in the notes to our consolidated financial statements for amounts that are recorded as reductions of revenue under IFRS 15 or, in certain cases, are accounted for under IFRS 9. These disclosures are provided for context only and do not represent an alternative basis of revenue recognition or measurement under IFRS.\n\n•\nPayment settlement service deduction – recognized as a reduction of revenue under IFRS 15. See Note 30 to our audited consolidated financial statements.\n\n•\nInterchange fees – revenue from Credit Payment Settlement Services and Acquiring Services is presented net of interchange fees. See Note 30 to our audited consolidated financial statements.\n\n•\nGuarantee fees (loan customers) – within the scope of IFRS 9 and recognized using the effective interest method, and not revenue under IFRS 15. See Note 30 to our audited consolidated financial statements.\n\n•\nConsideration payable to customers related to annual membership programs – recognized as a reduction of revenue under IFRS 15 (mainly benefits linked to annual membership fees). See Note 30 to our audited consolidated financial statements.\n\nOperating Expenses\n\nOperating expenses primarily consist of settlement related cost, provision for loss allowance and interest expenses (the sum of which we define as “Total Transaction Cost”), point expenses, employee benefit expenses, professional and outsourcing services expenses, as well as other operating expenses such as depreciation and amortization, license fees, advertising and promotion expenses and others. Technology related expenses are another key component of our operating expenses, depending on the nature of the systems and services, our technology-related expenses are recorded under various categories within operating expenses—such as license fees, professional and outsourcing services expenses, and depreciation and amortization. Typically, subscription-based services (such as cloud services) are classified under license fees. On the other hand, software that requires internal or external development is recorded under professional and outsourcing services expenses or, if capitalized, under depreciation and amortization. Our cost structure has improved with our business expansion, and we continue to benefit from operating leverage as our revenue base grows.\n\nFor the years ended March 31, 2024, 2025, and 2026, total operating expenses were ¥254,600 million, ¥263,568 million and ¥300,580 million, respectively. The year-over-year increase of 14.0% in the year ended March 31, 2026 was significantly lower than our 27.3% revenue growth over the same period, highlighting increased cost efficiency and margin expansion.\n\nThe following are key components of our operating expenses:\n\n•\nPoint Expenses: We recorded point expenses of ¥60,195 million in the year ended March 31, 2026, up from ¥50,362 million in the year ended March 31, 2025 and ¥45,402 million in the year ended March 31, 2024. Point expenses are promotional in nature and used as a mechanism to drive user acquisition, cross-selling and platform engagement. We can decide at our discretion the timing, targeted user groups and magnitude of the points we grant as rewards for code-based payment transactions. This discretionary nature and strategic purpose align more closely with marketing spend than with direct revenue generation. Although the total amount of point expenses increased, we have strategically moderated the distribution of broad-based incentives, reallocating towards targeted and performance-based campaigns to lower customer acquisition costs.\n\n•\nSettlement Related Cost: These expenses include fees paid to banks for users to charge their PayPay Balance from their bank accounts (charge costs), withdrawal fees incurred when funds are debited from users’ bank accounts, and brand or network fees paid to international card brands. Total settlement related cost was ¥48,731 million in the year ended March 31, 2026, compared to ¥43,662 million in the year ended March 31, 2025 and ¥39,992 million in the year ended March 31, 2024. The increases are consistent with rising transaction volume and expansion of financial service offerings, including increased charge costs (funding source costs) on PayPay Balance transactions, higher bank withdrawal fees associated with PayPay Card volume growth, and increased brand and network fees paid to international brands.\n\n78\n\n[Table of Contents](#toc_page)\n\n \n\n•\nEmployee Benefit Expenses: Our workforce expenses, including salaries, bonuses, welfare contributions, and share-based payments totaled ¥47,641 million in the year ended March 31, 2026, up from ¥41,483 million in the year ended March 31, 2025 and ¥37,764 million in the year ended March 31, 2024. This increase reflects headcount growth driven by business expansion, including engineers and corporate personnel, as well as personnel related to our banking operations. In addition, the increase in the year ended March 31, 2026 was driven by the commencement of share-based payment expenses.\n\n•\nProfessional and Outsourcing Services Expenses: Professional and outsourcing services expenses were ¥28,099 million in the year ended March 31, 2026, down from ¥28,767 million in the year ended March 31, 2025 and ¥34,800 million in the year ended March 31, 2024. The decline is primarily attributable to a reduction in outsourcing services expenses achieved through organizational restructuring as part of our broader cost optimization efforts including moving a part of the sales personnel to PayPay SC Corporation in the year ended March 31, 2025, as well as further cost savings in the year ended March 31, 2026 driven by the insourcing of operations and operational efficiencies. In addition, this also reflects a decrease in outsourcing services expenses in the year ended March 31, 2025 following the completion of PayPay Card Corporation’s core system development in the year ended March 31, 2024.\n\n•\nProvision for Loss Allowance: We recognized ¥24,923 million in provision expenses in the year ended March 31, 2026, compared to ¥23,942 million in the year ended March 31, 2025 and ¥23,006 million in the year ended March 31, 2024, primarily related to expected credit losses on credit card receivables and banking loans. Provision for loss allowance generally fluctuates in tandem with changes in credit limits, and since the acquisition of PayPay Card Corporation in 2022, we have continuously adjusted credit limits in line with business conditions. Credit risk remains within expected ranges, supported by our proprietary data-driven credit model. The provision for loss allowance has slightly increased from the year ended March 31, 2025 to the year ended March 31, 2026, primarily due to an increase in both credit card receivables driven by higher transaction volumes and banking loans.\n\nThe following components are included within “Other operating expenses” in our Consolidated Statements of Profit or Loss:\n\n•\nDepreciation and Amortization: We recorded ¥23,758 million in depreciation and amortization expenses in the year ended March 31, 2026, up from ¥20,093 million in the year ended March 31, 2025 and ¥17,549 million in the year ended March 31, 2024. These increases are primarily related to continued investment in internally developed software supporting both core payments and financial services platforms.\n\n•\nLicense Fees: License fees mainly consist of subscription-based services (such as cloud services). For the year ended March 31, 2026, license fee expenses totaled ¥18,899 million, an increase from ¥18,027 million in the year ended March 31, 2025 and ¥15,899 million in the year ended March 31, 2024. License fees primarily relate to payments made under contractual arrangements for technology infrastructure and service platforms.\n\n•\nInterest expenses: Interest expenses were ¥10,590 million in the year ended March 31, 2026, up from ¥4,254 million in the year ended March 31, 2025 and ¥1,931 million in the year ended March 31, 2024. This increase was primarily attributable to steady growth in our deposit balances, combined with a general rise in market interest rates.\n\n•\nAdvertising and Promotion Expenses: These expenses declined to ¥10,006 million in the year ended March 31, 2026 from ¥10,731 million in the year ended March 31, 2025 and ¥11,458 million in the year ended March 31, 2024. The reduction reflects a deliberate shift from mass-market incentive campaigns toward lower-cost marketing channels and in-app promotional tools and ecosystem-based cross-marketing, consistent with our user engagement and monetization maturity. In addition, we have enhanced cost effectiveness by focusing on high LTV user groups and efficient promotional campaigns. Further, certain promotions for merchants were subsidized by us only for the first transaction, thereby controlling recurring costs.\n\n•\nOther items: Other items recorded as operating expenses include taxes and charges, amortization of contract cost, and other. While these expense items were not substantial for the year ended March 31, 2026, the interest expenses increase accompanying the growth of the deposit balance in internet banking business.\n\nOur ability to drive top-line growth while maintaining disciplined cost control has resulted in sustained improvement in operating profitability. Our operating profit margin improved from 0.0% in the year ended March 31, 2024 to 11.9% in the year ended March 31, 2025, and to 21.0% in the year ended March 31, 2026.\n\n79\n\n[Table of Contents](#toc_page)\n\n \n\nAcquisition of PayPay Securities\n\nOn April 10, 2023, we acquired newly issued shares of PayPay Securities Corporation with the aim to increase revenue and profit through synergies, including our track record of having over 20 million users (on a cumulative basis to date) having used PayPay Points to effect transactions with PayPay Securities Corporation. On April 1, 2025, we acquired additional shares in PayPay Securities Corporation from SoftBank Corp. and LY Corporation, as well as subscribed to a third-party allocation of shares conducted by PayPay Securities Corporation, making it our consolidated subsidiary. Upon the completion of the transaction, we held 75.2% of the total number of issued shares, while Mizuho Securities Co., Ltd. held 24.8%.\n\nThe acquisition of PayPay Securities Corporation was accounted for as a business combination under common control. As a business combination under common control, we accounted for this transaction based on the book value of SoftBank Group Corp. and, regardless of the actual date we acquired PayPay Securities Corporation, retrospectively consolidated the financial statements of PayPay Securities Corporation, whereby we reflected the operating results and financial condition of PayPay Securities Corporation in our consolidated financial statements as if the acquisition had been completed on the opening balance sheet date of the comparative period. See Note 7 to our audited consolidated financial statements included elsewhere in this Annual Report.\n\nAcquisition of PayPay Bank\n\nOn April 11, 2025, we completed the acquisition of 47.1% of the common shares and all of the non-voting Class A preferred shares of PayPay Bank Corporation, Japan’s first internet bank, from Z Financial Corporation (currently LY Corporation) and Mitsui Sumitomo Insurance Co., while Sumitomo Mitsui Banking Corporation, Fujitsu Ltd., Taiju Life Insurance Company Limited and Sumitomo Life Insurance Company held 46.6%, 5.3%, 0.5% and 0.5% of the common shares, respectively, upon completion of the transaction.\n\nAfter the conversion of the non-voting Class A preferred shares of PayPay Bank Corporation into common shares, effective April 28, 2025, we held 75.5% of the common shares, making PayPay Bank Corporation our consolidated subsidiary. Other than the non-voting Class A preferred shares, to our knowledge, there are no outstanding potential equity interests that would dilute our ownership in PayPay Bank Corporation. Sumitomo Mitsui Banking Corporation remains a significant minority shareholder, holding 21.5% of the common shares as of December 31, 2025, and we continue to maintain a cooperative relationship with them.\n\nThe acquisition of PayPay Bank Corporation was accounted for as a business combination under common control. As a business combination under common control, we accounted for this transaction based on the book value of SoftBank Group Corp. and, regardless of the actual date we acquired PayPay Bank Corporation, retrospectively consolidated the financial statements of PayPay Bank Corporation, whereby we reflected the operating results and financial condition of PayPay Bank Corporation in our consolidated financial statements as if the acquisition had been completed on the opening balance sheet date of the comparative period. See Note 7 to our audited consolidated financial statements included elsewhere in this Annual Report.\n\n80\n\n[Table of Contents](#toc_page)\n\n \n\nHistorical Results of Operations\n\nThe following table shows summary consolidated statements of profit or loss data for the years ended March 31, 2024, 2025 and 2026:\n\n \n\n \n\n \n\nFor the year ended March 31,\n\n \n\n \n\n2024\n\n \n\n2025\n\n \n\n2026\n\n \n\n \n\n(in millions of yen)\n\nTransaction and service income:\n\n \n\n \n\n \n\n \n\n \n\n \n\nRevenue from external customers in Payment\n   segment\n\n \n\n149,310\n\n \n\n176,597\n\n \n\n220,770\n\nRevenue from external customers in Financial\n   service segment\n\n \n\n24,817\n\n \n\n26,998\n\n \n\n30,271\n\nTotal transaction and service income (Consolidated)\n\n \n\n174,127\n\n \n\n203,595\n\n \n\n251,041\n\nInterest income\n\n \n\n73,884\n\n \n\n88,442\n\n \n\n116,488\n\nGains (losses) on financial instruments\n\n \n\n4,641\n\n \n\n5,529\n\n \n\n10,250\n\nOther operating income\n\n \n\n1,959\n\n \n\n1,512\n\n \n\n2,883\n\nTotal revenue\n\n \n\n254,611\n\n \n\n299,078\n\n \n\n380,662\n\nOperating expenses\n\n \n\n(254,600)\n\n \n\n(263,568)\n\n \n\n(300,580)\n\nOperating profit\n\n \n\n11\n\n \n\n35,510\n\n \n\n80,082\n\nShare of loss of investments accounted for using\n  the equity method (1)\n\n \n\n—\n\n \n\n(549)\n\n \n\n(137)\n\nProfit before tax\n\n \n\n11\n\n \n\n34,961\n\n \n\n79,945\n\nIncome tax (expense) benefit\n\n \n\n(841)\n\n \n\n4,196\n\n \n\n37,865\n\nProfit (loss) for the year\n\n \n\n(830)\n\n \n\n39,157\n\n \n\n117,810\n\nAttributable to:\n\n \n\n \n\n \n\n \n\n \n\n \n\nOwners of the parent company\n\n \n\n(3,350)\n\n \n\n36,170\n\n \n\n115,034\n\nNon-controlling interests\n\n \n\n2,520\n\n \n\n2,987\n\n \n\n2,776\n\n(1) Share of loss of investments accounted for using the equity method includes share of loss of a joint venture accounted for using the equity method.\n\nComparison of the Year Ended March 31, 2026 with the Year Ended March 31, 2025\n\n \n\nTotal revenue. Total revenue increased by ¥81,584 million, or 27.3%, from ¥299,078 million for the year ended March 31, 2025 to ¥380,662 million for the year ended March 31, 2026. Total revenue consists of the following: transaction and service income, interest income, gains (losses) on financial instruments and other operating income.\n\nTransaction and service income. Transaction and service income was ¥251,041 million for the year ended March 31, 2026, an increase of ¥47,446 million, or 23.3%, from ¥203,595 million for the year ended March 31, 2025. The increase was due mainly to an increase in revenue from external customers for the Payment segment of ¥44,173 million, or 25.0%, from ¥176,597 million for the year ended March 31, 2025 to ¥220,770 million for the year ended March 31, 2026. The increase was mainly driven by growth in Payment Segment GMV supported by increased adoption of PayPay Credit and PayPay Card as well as continued increase in Payment Segment Monthly GMV per MTU. The number of users increased steadily as our services continued to gain broader recognition, and Monthly GMV per MTU increased as users integrated our services into their daily payment habits. PayPay MTU reached 41.0 million as of March 2026, an increase of 3.74 million from March 2025, representing 56% of PayPay registered users. The year-over-year growth also reflected an improved Take Rate driven by a higher mix of high-margin online payments as well as continued improvements across both offline and online payment. Payment Segment GMV reached ¥19.03 trillion in the year ended March 31, 2026, up from ¥15.39 trillion in the year ended March 31, 2025. The increase in transaction and service income also resulted from an increase in revenue from external customers for the Financial service segment of ¥3,273 million, or 12.1%, from ¥26,998 million in the year ended March 31, 2025 to ¥30,271 million in the year ended March 31, 2026. The increase in the Financial service segment was due primarily to an increase in the volume of transactions in the banking business associated with an increased number of accounts, as well as the introduction of maintenance fees for accounts inactive for two years or more. The number of PayPay Bank deposit accounts was 9.98 million as of March 31, 2026, up from 8.95 million as of March 31, 2025, and the number of PayPay Securities accounts was 1.73 million as of March 31, 2026, up from 1.37 million as of March 31, 2025, reflecting an effective cross- selling strategy within our ecosystem and facilitating the domestic retail offering of PayPay’s IPO shares (PayPay ADS) through PayPay Securities respectively.\n\nInterest income. Interest income was ¥116,488 million in the year ended March 31, 2026, an increase of ¥28,046 million, or 31.7%, from ¥88,442 million in the year ended March 31, 2025. This increase was due mainly to\n\n81\n\n[Table of Contents](#toc_page)\n\n \n\nan upward trend in effective interest rates and an increase in the balance of credit card receivables as well as loans offered by PayPay Bank Corporation. The increase also reflected the reduction in the external guarantee fee rate which is deducted from interest income in the Financial Service Segment, effective from the third quarter ended December 31, 2025, which contributed to the increase in interest income in the year ended March 31, 2026.\n\nWhile gains on financial instruments and other operating income do not account for a significant portion of total revenue, gains on financial instruments increased by ¥4,721 million, or 85.4%, from ¥5,529 million for the year ended March 31, 2025 to ¥10,250 million for the year ended March 31, 2026. The increase was due mainly to an upward trend in effective interest rates and an increase in fair value of financial instruments recorded in the Financial service segment. Other operating income primarily comprises income recognized from the expiration of contractual obligations, including unused PayPay balances and expired gift cards. Other operating income increased by ¥1,371 million, or 90.7%, from ¥1,512 million for the year ended March 31, 2025 to ¥2,853 million for the year ended March 31, 2026. The increase was due mainly to the expiration of contractual obligations, such as unused balances and expired gift cards.\n\nOperating expenses. Operating expenses were ¥300,580 million for the year ended March 31, 2026, an increase of ¥37,012 million, or 14.0%, from ¥263,568 million for the year ended March 31, 2025. The following table presents a breakdown of operating expenses for the years ended March 31, 2025 and 2026. Due to our continuous cost control efforts, the increase in variable costs was only marginal compared to the revenue growth.\n\n \n\n \n\n \n\nFor the year ended March 31,\n\n \n\n \n\n2025\n\n \n\n2026\n\n \n\n \n\n(in millions of yen)\n\nSettlement related cost\n\n \n\n43,662\n\n \n\n48,731\n\nProvision for loss allowance\n\n \n\n23,942\n\n \n\n24,923\n\nInterest expenses\n\n \n\n4,254\n\n \n\n10,590\n\nTotal Transaction Cost\n\n \n\n71,858\n\n \n\n84,244\n\nPoint expenses\n\n \n\n50,362\n\n \n\n60,195\n\nEmployee benefit expenses\n\n \n\n41,483\n\n \n\n47,641\n\nProfessional and outsourcing services expenses\n\n \n\n28,767\n\n \n\n28,099\n\nDepreciation and amortization\n\n \n\n20,093\n\n \n\n23,758\n\nLicense fees\n\n \n\n18,027\n\n \n\n18,899\n\nAdvertising and promotion expenses\n\n \n\n10,731\n\n \n\n10,006\n\nTax and charges\n\n \n\n5,052\n\n \n\n5,943\n\nAmortization of contract cost\n\n \n\n1,297\n\n \n\n1,724\n\nOther\n\n \n\n15,898\n\n \n\n20,071\n\nTotal\n\n \n\n263,568\n\n \n\n300,580\n\n \n\nThe increase in operating expenses was primarily attributable to the following major expense categories: settlement related cost, interest expenses, point expenses, employee benefit expenses, depreciation and amortization. The increase in these expenses were partially offset by a decrease in professional and outsourcing services expenses. The following provides a detailed background on the year-over-year fluctuations by expense category:\n\n•\nSettlement related cost: Settlement related cost increased by ¥5,069 million, or 11.6%, from ¥43,662 million for the year ended March 31, 2025 to ¥48,731 million for the year ended March 31, 2026. Settlement related cost includes fees paid to banks when users top up their PayPay Balance from their bank accounts, withdrawal fees incurred when funds are debited from users’ bank accounts, and brand or network fees paid to international card brands. While settlement related cost increased in line with the growth in Payment Segment GMV, settlement related cost as a percentage of the total revenue decreased to 13% for the year ended March 31, 2026 from 15% for the year ended March 31, 2025, reflecting our continued efforts to optimize funding costs paid to banks.\n\n•\nInterest expenses: Interest expenses increased by ¥6,336 million, or 148.9%, from ¥4,254 million for the year ended March 31, 2025 to ¥10,590 million for the year ended March 31, 2026. The increase in interest expenses was due mainly to an increase in funding costs at PayPay Card Corporation resulting from an increase in the effective interest rates, as well as higher interest expenses at PayPay Bank Corporation associated with growth in deposit balances.\n\n82\n\n[Table of Contents](#toc_page)\n\n \n\n•\nPoint expenses: Point expenses increased by ¥9,833 million, or 19.5%, from ¥50,362 million for the year ended March 31, 2025 to ¥60,195 million for the year ended March 31, 2026. The increase was primarily attributable to growth in PayPay Balance GMV. Although the number of transactions subject to the point rewards increase as the PayPay Balance GMV grows, we strategically determine, at our discretion, the timing, target user segments, and amount of points granted as rewards for code-based payment transactions.\n\n•\nEmployee benefit expenses: Employee benefit expenses increased by ¥6,158 million, or 14.8%, from ¥41,483 million for the year ended March 31, 2025 to ¥47,641 million for the year ended March 31, 2026. The increase in employee benefit expenses resulted from the revenue growth as well as the share-based payment expenses recognized in the current year, which amounts to ¥1,847 million.\n\n•\nDepreciation and amortization: Depreciation and amortization increased by ¥3,665 million, or 18.2%, from ¥20,093 million for the year ended March 31, 2025 to ¥23,758 million for the year ended March 31, 2026. The increase in depreciation and amortization was attributable to the higher depreciable basis of the PayPay app, which has been capitalized through its continuous development.\n\n•\nOther operating expenses: Other operating expenses increased by ¥4,173 million, or 26.2%, from ¥15,898 million for the year ended March 31, 2025 to ¥20,071 million for the year ended March 31, 2026. The increase was primarily attributable to higher professional fees, such as audit fees and legal advisory fees, incurred in connection with preparations for our initial public offering.\n\n \n\nOperating profit. As a result of the foregoing, operating profit was ¥80,082 million for the year ended March 31, 2026, an increase of ¥44,572 million from ¥35,499 million for the year ended March 31, 2025.\n\nShare of loss of investments accounted for using the equity method. Share of loss of investments accounted for using the equity method was ¥137 million for the year ended March 31, 2026, a decrease of ¥412 million from ¥549 million for the year ended March 31, 2025.\n\nProfit before tax. As a result of the foregoing, profit before tax was ¥79,945 million for the year ended March 31, 2026, an increase of ¥44,984 million from ¥34,961 million for the year ended March 31, 2025.\n\nIncome tax (expense) benefit. Income tax (expense) benefit increased by ¥33,669 million, or 802.4%, from ¥4,196 million for the year ended March 31, 2025 to ¥37,865 million for the year ended March 31, 2026. The increase was due mainly to the recognition of additional deferred tax assets relating to deductible temporary differences and carryforward of unused tax losses that had not been previously recognized, following a reassessment of their recoverability in light of projections of future taxable profit.\n\nProfit (loss) for the year. As a result of the foregoing, we recorded a profit for the year of ¥117,810 million for the year ended March 31, 2026, an increase of ¥78,653 million from ¥39,157 million for the year ended March 31, 2025.\n\nComparison of the Year Ended March 31, 2025 with the Year Ended March 31, 2024\n\nTotal revenue. Total revenue increased by ¥44,467 million, or 17.5%, from ¥254,611 million for the year ended March 31, 2024 to ¥299,078 million for the year ended March 31, 2025. Total revenue consists of the following: transaction and service income, interest income, gains (losses) on financial instruments and other operating income.\n\nTransaction and service income. Transaction and service income was ¥203,595 million for the year ended March 31, 2025, an increase of ¥29,468 million, or 16.9%, from ¥174,127 million for the year ended March 31, 2024. The increase was due mainly to an increase in revenue from external customers for the Payment segment of ¥27,287 million, or 18.3%, from ¥149,310 million for the year ended March 31, 2024 to ¥176,597 million for the year ended March 31, 2025, which was driven mainly by the steady expansion of revenue from PayPay Balance payments. Because the PayPay Balance payment service was in a steady growth stage, the number of users increased at a steady rate as the service attained wider recognition, and the total amount used by a user increased as people integrated the service into their daily payment habits. As a consequence, PayPay Balance GMV increased, and GMV per MTU also rose, leading to higher revenue from PayPay Balance payments. The increase in transaction and service income also resulted from an increase in revenue from external customers for the Financial service segment of ¥2,181 million, or 8.8%, from ¥24,817 million in the year ended March 31, 2024 to ¥26,998 million in the year ended March 31, 2025. The increase in the Financial service segment was due mainly to an increase in the volume of transactions in the banking business.\n\nInterest income. Interest income was ¥88,442 million in the year ended March 31, 2025, an increase of ¥14,558 million, or 19.7%, from ¥73,884 million in the year ended March 31, 2024. This increase was due mainly to\n\n83\n\n[Table of Contents](#toc_page)\n\n \n\nan upward trend in effective interest rates and an increase in the balance of PayPay Card credit issued as well as loans offered by PayPay Bank Corporation.\n\nWhile gains on financial instruments and other operating income do not account for a significant portion of total revenue, gains on financial instruments increased by ¥888 million, or 19.1%, from ¥4,641 million for the year ended March 31, 2024 to ¥5,529 million for the year ended March 31, 2025. The increase was due mainly to an upward trend in effective interest rates and an increase in fair value of financial instruments recorded in the Financial service segment. Other operating income primarily comprises income recognized from the expiration of contractual obligations, including unused PayPay balances and expired gift cards.\n\nOperating expenses. Operating expenses were ¥263,568 million for the year ended March 31, 2025, an increase of ¥8,968 million, or 3.5%, from ¥254,600 million for the year ended March 31, 2024. The following table presents a breakdown of operating expenses for the years ended March 31, 2024 and 2025. Due to our continuous cost control efforts, the increase in variable costs was only marginal compared to the revenue growth\n\n \n\n \n\n \n\nFor the year ended March 31,\n\n \n\n \n\n2024\n\n \n\n2025\n\n \n\n \n\n(in millions of yen)\n\nSettlement related cost\n\n \n\n39,992\n\n \n\n43,662\n\nProvision for loss allowance\n\n \n\n23,006\n\n \n\n23,942\n\nInterest expenses\n\n \n\n1,931\n\n \n\n4,254\n\nTotal Transaction Cost\n\n \n\n64,929\n\n \n\n71,858\n\nPoint expenses\n\n \n\n45,402\n\n \n\n50,362\n\nEmployee benefit expenses\n\n \n\n37,764\n\n \n\n41,483\n\nProfessional and outsourcing services expenses\n\n \n\n34,800\n\n \n\n28,767\n\nDepreciation and amortization\n\n \n\n17,549\n\n \n\n20,093\n\nLicense fees\n\n \n\n15,899\n\n \n\n18,027\n\nAdvertising and promotion expenses\n\n \n\n11,458\n\n \n\n10,731\n\nTax and charges\n\n \n\n6,518\n\n \n\n5,052\n\nAmortization of contract cost\n\n \n\n1,043\n\n \n\n1,297\n\nOther\n\n \n\n19,238\n\n \n\n15,898\n\nTotal\n\n \n\n254,600\n\n \n\n263,568\n\n \n\nThe increase in operating expenses was primarily attributable to the following major expense categories: settlement related cost, interest expenses, point expenses, employee benefit expenses, depreciation and amortization and license fees. The increase in these expenses were partially offset by a decrease in professional and outsourcing services expenses. The following provides a detailed background on the year-over-year fluctuations by expense category:\n\n•\nSettlement related cost: Settlement related cost increased by ¥3,670 million, or 9.2%, from ¥39,992 million for the year ended March 31, 2024 to ¥43,662 million for the year ended March 31, 2025. Settlement related cost includes fees paid to banks when users top up their PayPay Balance from their bank accounts, withdrawal fees incurred when funds are debited from users’ bank accounts, and brand or network fees paid to international card brands. Settlement related cost increased due to higher PayPay Balance GMV, PayPay Credit GMV and PayPay Card GMV.\n\n•\nInterest expenses: Interest expenses increased by ¥2,323 million, or 120.3%, from ¥1,931 million for the year ended March 31, 2024 to ¥4,254 million for the year ended March 31, 2025. The significant increase in interest expenses was due to an increase in the effective interest rate and an increased balance of deposits from PayPay Bank users.\n\n•\nPoint expenses: Point expenses increased by ¥4,960 million, or 10.9%, from ¥45,402 million for the year ended March 31, 2024 to ¥50,362 million for the year ended March 31, 2025. We can decide at our discretion the timing, targeted user groups and magnitude of the points we grant as rewards for code-based payment transactions. Over time, the promotional rate has declined as the Company has strengthened its market position.\n\n84\n\n[Table of Contents](#toc_page)\n\n \n\n•\nEmployee benefit expenses: Employee benefit expenses increased by ¥3,719 million, or 9.8%, from ¥37,764 million for the year ended March 31, 2024 to ¥41,483 million for the year ended March 31, 2025. Due to business expansion, employee benefit expenses increased by 23.9% from the year ended March 31, 2023 to the year ended March 31, 2024. While our business continued to grow from the year ended March 31, 2024 to the year ended March 31, 2025, the increase in the year ended March 31, 2025 was largely offset by a personnel transfer for the establishment of PayPay SC Corporation, resulting in a modest increase of 9.8%.\n\n•\nDepreciation and amortization: Depreciation and amortization increased by ¥2,544 million, or 14.5%, from ¥17,549 million for the year ended March 31, 2024 to ¥20,093 million for the year ended March 31, 2025. The increase in depreciation and amortization was attributable to the higher depreciable basis of the PayPay app, which has been capitalized through its continuous development.\n\n•\nLicense fees: License fees increased by ¥2,128 million, or 13.4%, from ¥15,899 million for the year ended March 31, 2024 to ¥18,027 million for the year ended March 31, 2025. The increase in license fees was primarily attributable to the increased volume of cloud service usage driven by the increase in GMV.\n\n•\nProfessional and outsourcing services expenses: Professional and outsourcing service expenses decreased by ¥6,033 million, or 17.3%, from ¥34,800 million for the year ended March 31, 2024 to ¥28,767 million for the year ended March 31, 2025. This decline was primarily attributable to (i) a decline in outsourcing services expenses following the completion of PayPay Card Corporation’s core system development in the year ended March 31, 2024, and (ii) a reduction in outsourcing services expenses achieved through organizational restructuring as part of our broader cost optimization efforts including transferring part of the sales personnel to PayPay SC Corporation.\n\nManagement also noted that while the balance of revolving payment by PayPay Card users increased from the year ended March 31, 2024, provision for loss allowance has been relatively consistent year-over-year because of credit limit optimization. Provision for loss allowance increased slightly by ¥936 million, or 4.1%, from ¥23,006 million for the year ended March 31, 2024 to ¥23,942 million for the year ended March 31, 2025. Provision for loss allowance consists primarily of loss allowance provisions related to PayPay Card advances, and are largely influenced by credit risk of PayPay Card users as well as the outstanding balance owed by such users. Shortly after the acquisition of PayPay Card Corporation in October 2022, we undertook an initiative to increase users’ credit limits and assume greater credit risk, with the objective of driving higher purchase volumes and enhancing PayPay Card Corporation’s market share. As a consequence, we recognized a relatively higher provision for loss allowance for the year ended March 31, 2024 due to bad debts. Having achieved sufficient market share and in light of concerns regarding excessive credit risk, we optimized users’ credit limits, which resulted in a relatively mild increase in loss allowance provisions for the year ended March 31, 2025.\n\nOperating profit. As a result of the foregoing, operating profit was ¥35,510 million for the year ended March 31, 2025, an increase of ¥35,499 million from ¥11 million for the year ended March 31, 2024.\n\nShare of loss of investments accounted for using the equity method. Share of loss of investments accounted for using the equity method was ¥549 million for the year ended March 31, 2025, compared with none recorded for the year ended March 31, 2024.\n\nProfit before tax. As a result of the foregoing, profit before tax was ¥34,961 million for the year ended March 31, 2025, an increase of ¥34,950 million from ¥11 million for the year ended March 31, 2024.\n\nIncome tax (expense) benefit. Income tax benefit was ¥4,196 million for the year ended March 31, 2025 compared to income tax expense of ¥841 million for the year ended March 31, 2024. Because we did not generate profits in prior fiscal years, deferred tax assets were not recognized. Because we achieved profitability in the year ended March 31, 2025, we recognized deferred tax assets, leading to the recognition of substantial deferred income tax benefit.\n\nProfit (loss) for the year. As a result of the foregoing, we recorded a profit for the year of ¥39,157 million for the year ended March 31, 2025, compared to a loss for the year of ¥830 million for the year ended March 31, 2024.\n\n \n\n85\n\n[Table of Contents](#toc_page)\n\n \n\nResults by Segment\n\nThe following tables show revenue and profit and loss information by segment for the years ended March 31, 2024, 2025 and 2026:\n\n \n\n \n\nFor the year ended March 31, 2024\n\n \n\n \n\nPayment\nsegment\n\n \n\nFinancial service\nsegment\n\n \n\nInter-segment\neliminations\n\n \n\nConsolidated\n\n \n\n \n\n(in millions of yen)\n\nTransaction and service income\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nRevenue from external customers\n\n \n\n149,310\n\n \n\n24,817\n\n \n\n—\n\n \n\n174,127\n\nInter-segment revenue\n\n \n\n823\n\n \n\n2,081\n\n \n\n(2,904)\n\n \n\n—\n\nTotal transaction and service income\n\n \n\n150,133\n\n \n\n26,898\n\n \n\n(2,904)\n\n \n\n174,127\n\nInterest income\n\n \n\n59,013\n\n \n\n14,871\n\n \n\n—\n\n \n\n73,884\n\nGains (losses) on financial instruments\n\n \n\n405\n\n \n\n4,236\n\n \n\n—\n\n \n\n4,641\n\nOther operating income\n\n \n\n1,756\n\n \n\n203\n\n \n\n—\n\n \n\n1,959\n\nTotal revenue\n\n \n\n211,307\n\n \n\n46,208\n\n \n\n(2,904)\n\n \n\n254,611\n\nOperating expenses\n\n \n\n(215,084)\n\n \n\n(42,420)\n\n \n\n2,904\n\n \n\n(254,600)\n\nSegment (loss) profit\n\n \n\n(3,777)\n\n \n\n3,788\n\n \n\n—\n\n \n\n11\n\n \n\n \n\n \n\nFor the year ended March 31, 2025\n\n \n\n \n\nPayment\nsegment\n\n \n\nFinancial service\nsegment\n\n \n\nInter-segment\neliminations\n\n \n\nConsolidated\n\n \n\n \n\n(in millions of yen)\n\nTransaction and service income\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nRevenue from external customers\n\n \n\n176,597\n\n \n\n26,998\n\n \n\n—\n\n \n\n203,595\n\nInter-segment revenue\n\n \n\n1,454\n\n \n\n1,362\n\n \n\n(2,816)\n\n \n\n—\n\nTotal transaction and service income\n\n \n\n178,051\n\n \n\n28,360\n\n \n\n(2,816)\n\n \n\n203,595\n\nInterest income\n\n \n\n68,623\n\n \n\n19,819\n\n \n\n—\n\n \n\n88,442\n\nGains (losses) on financial instruments\n\n \n\n276\n\n \n\n5,253\n\n \n\n—\n\n \n\n5,529\n\nOther operating income\n\n \n\n1,304\n\n \n\n208\n\n \n\n—\n\n \n\n1,512\n\nTotal revenue\n\n \n\n248,254\n\n \n\n53,640\n\n \n\n(2,816)\n\n \n\n299,078\n\nOperating expenses\n\n \n\n(217,898)\n\n \n\n(48,486)\n\n \n\n2,816\n\n \n\n(263,568)\n\nSegment profit\n\n \n\n30,356\n\n \n\n5,154\n\n \n\n—\n\n \n\n35,510\n\n \n\n \n\n \n\nFor the year ended March 31, 2026\n\n \n\n \n\nPayment\nsegment\n\n \n\nFinancial service\nsegment\n\n \n\nInter-segment\neliminations\n\n \n\nConsolidated\n\n \n\n \n\n(in millions of yen)\n\nTransaction and service income\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nRevenue from external customers\n\n \n\n220,770\n\n \n\n30,271\n\n \n\n—\n\n \n\n251,041\n\nInter-segment revenue\n\n \n\n1,124\n\n \n\n870\n\n \n\n(1,994)\n\n \n\n—\n\nTotal transaction and service income\n\n \n\n221,894\n\n \n\n31,141\n\n \n\n(1,994)\n\n \n\n251,041\n\nInterest income\n\n \n\n84,574\n\n \n\n32,674\n\n \n\n(760)\n\n \n\n116,488\n\nGains (losses) on financial instruments\n\n \n\n2,327\n\n \n\n7,923\n\n \n\n—\n\n \n\n10,250\n\nOther operating income\n\n \n\n2,422\n\n \n\n628\n\n \n\n(167)\n\n \n\n2,883\n\nTotal revenue\n\n \n\n311,217\n\n \n\n72,366\n\n \n\n(2,921)\n\n \n\n380,662\n\nOperating expenses\n\n \n\n(246,722)\n\n \n\n(56,779)\n\n \n\n2,921\n\n \n\n(300,580)\n\nSegment profit\n\n \n\n64,495\n\n \n\n15,587\n\n \n\n—\n\n \n\n80,082\n\nComparison of the Year Ended March 31, 2026 with the Year Ended March 31, 2025\n\nPayment Segment\n\nTotal revenue for the Payment segment increased by ¥62,963 million, or 20.2%, from ¥248,254 million for the year ended March 31, 2025 to ¥311,217 million for the year ended March 31, 2026. The increase in total revenue was primarily driven by transaction and service income from external customers, which increased by ¥44,173 million, or 20.0%, from ¥176,597 million for the year ended March 31, 2025 to ¥220,770 million for the year ended March 31, 2026. The increase was supported by the steady growth in GMV, which increased by 23.7% year over year, supported by the increase in MTUs and higher GMV per MTU. Revenue growth also reflected an improved take rate driven by an increase in the proportion of high-margin online payments from 14% to 17% as a percentage of combined PayPay Balance and PayPay Credit GMV, as well as continued improvements across both offline and online payment. In addition, interest income increased as a result of expansion of PayPay Credit Card Financing Balance including revolving, installment and cash advance.\n\n86\n\n[Table of Contents](#toc_page)\n\n \n\nOperating expenses for the Payment segment increased by ¥28,824 million, or 13.2%, from ¥217,898 million for the year ended March 31, 2025 to ¥246,722 million for the year ended March 31, 2026. The increase in operating expenses was lower than the rate of revenue growth, reflecting operating leverage in our business model. While point expenses, settlement related cost, employee benefit expenses, and other operating expenses increased by ¥9,833 million, ¥4,172 million, ¥3,806 million, and 4,770 million respectively. The increase of point expense as well as settlement related cost of payment segment resulted from increase in Payment Segment GMV. The increase in employee benefit expenses is due to higher average number of headcounts for the year ended March 31, 2026.\n\nAs a result of the foregoing, segment profit for the Payment segment amounted to ¥64,495 million for the year ended March 31, 2026, compared with a segment profit of ¥30,356 million for the year ended March 31, 2025.\n\nFinancial Service Segment\n\nTotal revenue for the Financial service segment increased by ¥18,726 million, or 25.9%, from ¥53,640 million for the year ended March 31, 2025 to ¥72,366 million for the year ended March 31, 2026. The increase was due mainly to an increase in transaction and service income from external customers of ¥3,273 million, or 12.1%, to ¥30,271 million for the year ended March 31, 2026, from ¥26,998 million for the year ended March 31, 2025, which reflected an increase in the number of deposit accounts and increase of ancillary banking and platform usage fees from PayPay Bank Corporation. Interest income increased by ¥12,855 million, or 64.9%, to ¥32,674 million for the year ended March 31, 2026, compared to ¥19,819 million for the year ended March 31, 2025, reflecting primarily the expansion of loan balances, the end of the Bank of Japan’s negative interest rate policy in early 2024 and the subsequent rise in benchmark rates and bond yields, as well as a reduction in the external guarantee fee rate effective from the quarter ended December 31, 2025.\n\nOperating expenses for the Financial service segment increased by ¥8,293 million, or 17.1%, from ¥48,486 million for the year ended March 31, 2025 to ¥56,779 million for the year ended March 31, 2026. The increase was due mainly to an increase of ¥4,719 million in interest expenses due to higher interest rate and the increased balance of deposits. Employee benefit expenses also increased by ¥2,366 million due to an increase in headcount.\n\nAs a result of the foregoing, segment profit for the Financial service segment amounted to ¥15,587 million for the year ended March 31, 2026, compared with a segment profit of ¥5,154 million for the year ended March 31, 2025.\n\nComparison of the Year Ended March 31, 2025 with the Year Ended March 31, 2024\n\nPayment Segment\n\nTotal revenue for the Payment segment increased by ¥36,947 million, or 17.5%, from ¥211,307 million for the year ended March 31, 2024 to ¥248,254 million for the year ended March 31, 2025. The increase in total revenue was primarily driven by transaction and service income from external customers, which increased by ¥27,287 million, or 18.3%, from ¥149,310 million for the year ended March 31, 2024 to ¥176,597 million for the year ended March 31, 2025. This increase was supported by the steady growth of GMV associated with PayPay Balance payments, which in turn reflected both an increase in MTUs and higher GMV per MTU.\n\nOperating expenses for the Payment segment increased by ¥2,813 million, or 1.3%, from ¥215,084 million for the year ended March 31, 2024 to ¥217,898 million for the year ended March 31, 2025. The moderate increase in operating expenses resulted from our continuous efforts on cost control. While point expenses, settlement related cost and employee benefit expenses increased by ¥4,960 million, ¥2,985 million and ¥2,003 million, respectively, in line with business growth, these increases were offset by a decrease of ¥6,569 million in professional and outsourcing services expenses, due primarily to reduced outsourcing of sales and system development service. Instead, we utilized our own resources.\n\nAs a result of the foregoing, segment profit for the Payment segment amounted to ¥30,356 million for the year ended March 31, 2025, compared with a segment loss of ¥3,777 million for the year ended March 31, 2024.\n\nFinancial Service Segment\n\nTotal revenue for the Financial service segment increased by ¥7,432 million, or 16.1%, from ¥46,208 million for the year ended March 31, 2024 to ¥53,640 million for the year ended March 31, 2025. The increase was due mainly to (a) an increase in transaction and service income from external customers of ¥2,181 million, or 8.8%, to ¥26,998 million for the year ended March 31, 2025, from ¥24,817 million for the year ended March 31, 2024, which reflected an increase of ancillary banking and platform usage fees from PayPay Bank Corporation, and (b) an increase in interest income of ¥4,948 million, or 33.3%, to ¥19,819 million for the year ended March 31, 2025, compared to ¥14,871 million for the year ended March 31, 2024, reflecting primarily the expansion of loan balances, as well as the\n\n87\n\n[Table of Contents](#toc_page)\n\n \n\nend of the Bank of Japan’s negative interest rate policy in early 2024 and the subsequent rise in benchmark rates and bond yields.\n\nOperating expenses for the Financial service segment increased by ¥6,066 million, or 14.3%, from ¥42,420 million for the year ended March 31, 2024 to ¥48,486 million for the year ended March 31, 2025. The increase was due mainly to an increase of ¥1,734 million in interest expenses due to higher interest rate and the increased balance of deposits. Employee benefit expenses also increased by ¥1,716 million due to an increase in headcount.\n\nAs a result of the foregoing, segment profit for the Financial service segment amounted to ¥5,154 million for the year ended March 31, 2025, compared with a segment profit of ¥3,788 million for the year ended March 31, 2024.\n\nB Liquidity and capital resources\n\nCash and Capital Requirements\n\nAs a company with all of its main operations in Japan, our cash and capital requirements are principally denominated in Japanese yen. Our cash and capital requirements are related mainly to our operating cash requirements, including operating expenses, such as advertising and promotion expenses, debt service and repayments, as well as other investments. We launched our PayPay app in 2018 and incurred operating losses in every fiscal year since our inception through the year ended March 31, 2023, but have recorded operating profit since the year ended March 31, 2024, and we recorded losses for the year in every fiscal year since our inception through the year ended March 31, 2024, but recorded profit since the year ended March 31, 2025. We have primarily funded our operations through the issuance of equity to our shareholders as well as with borrowings from various lenders. We expect to increasingly fund our operations from cash flow from operating activities due to the increased scale of our user base and revenue, in particular since we ended our initial waiver of small- and medium-sized merchant payment settlement fees in our Payment segment in October 2021.\n\nOperating Cash Requirements\n\nWe require cash on an ongoing basis to finance our regular operations. In our Payment segment, when users of our PayPay app charge their PayPay Balance, we receive cash from the users prior to our paying accounts payable to merchants. Generally, at the end of a given fiscal period, the balance of accounts payable related to code-based payments tends to exceed the balance of accounts receivable, and the difference is linked to an increase in cash and deposits to ensure operating cash.\n\nWe are required to comply with the Payment Services Act because we engage in business activities that involve advance payments from users using prepaid payment instruments, namely our offering of PayPay Money and PayPay Money Lite as summarized below.\n\n \n\n \n\n \n\n \n\nPayPay Money\n\n \n\nPayPay Money Lite\n\neKYC\n\n \n\nRequired\n\n \n\nNot required\n\nGoverning Law and Relevant Regulations\n\n \n\nPayment Services Act (Funds Transfer)\n\n \n\nPayment Services Act (Prepaid Payment Instruments)\n\nRequired Guarantee Deposits\n\n \n\nMust cover 100% of the total unused prepaid balance of PayPay Money.\n\nNote: For PayPay Money for digital wages payment, however, we are not required to provide guarantee deposits as we have entered into a Guarantee Contract of Security Deposit of Providing Funds Transfer Service for PayPay Money for digital wages payments.\n\n \n\nMust cover 50% of the total unused prepaid balance of PayPay Money Lite.\n\nKey Features\n\n \n\n- Can be withdrawn in the form of cash.\n\n- Can be charged via bank account transfer, partner ATMs, proceeds or rewards from Yahoo! JAPAN services, insurance proceeds, withdrawals from securities or financial accounts, share sale proceeds, salary deposits, loan-linked services,\n\n \n\n- Withdrawals are not permitted in principle.\n\n- Can be charged by PayPay Card or SoftBank/Y!mobile Carrier Billing.\n\n- Can be transferred between accounts via P2P money transfer.\n\n88\n\n[Table of Contents](#toc_page)\n\n \n\n \n\n \n\nPayPay Bank loans, or bank transfers from partner services.\n\n- Can be transferred between accounts via P2P money transfer.\n\n \n\nNote: If eKYC verification is not completed, any funds charged via bank account transfer, partner ATMs, proceeds from Yahoo! JAPAN services, or receiving PayPay Money via P2P money transfer, will be classified as PayPay Money Lite.\n\nTypical Use Cases\n\n \n\nPayPay payments, transfers and withdrawals\n\n \n\nPayPay payments and transfers\n\n \n\nUnder the Payment Services Act, we are registered as a fund transfer service provider to offer PayPay Money, a refundable type of PayPay Balance deposited by users. As a fund transfer service provider, we are required to secure, by one or more methods permitted under the Payment Services Act, including guarantee deposits with the Tokyo Legal Affairs Bureau, guarantee contracts and trust arrangements, an amount equal to the full outstanding balance of PayPay Money, plus the costs associated with the exercise of our users’ rights as creditors of our fund transfer service.\n\nAlso under the Payment Services Act, because we offer PayPay Money Lite, a non-refundable type of PayPay Balance pre-loaded through advance payments by users, we are required to secure, by one or more methods permitted under the Payment Services Act, including guarantee deposits with the Tokyo Legal Affairs Bureau and trust arrangements, an amount that is at least half of the outstanding balance of PayPay Money Lite as of March 31 or September 30 every year if such balance exceeds ¥10 million.\n\nFor details on the calculation of our required guarantee deposits, see Note 9 to our audited consolidated financial statements included elsewhere in this Annual Report. We are required to deposit the amount for guarantee deposits in cash or bonds, or enter into a guarantee contract or trust arrangement with a financial institution for the amount required. The deposited amounts are recorded as guarantee deposits in our consolidated statements of financial position and are not available for our use in accordance with the Payment Services Act, while amounts of PayPay Balance that do not require a guarantee deposit are included in cash and cash equivalents in our consolidated statements of financial position. See Note 8 to our audited consolidated financial statements included elsewhere in this Annual Report. As of March 31, 2026, cash and cash equivalents were ¥363,083 million and guarantee deposits were ¥74,139 million. As of March 31, 2025, cash and cash equivalents were ¥369,811 million and guarantee deposits were ¥244,229 million.\n\nIn our Payment segment, when PayPay Card holders use our credit payment services (including PayPay Credit), we extend credit to our cardholders and require cash to settle credit payments with merchants prior to collecting receivables from our cardholders. Through liquidation arrangements for credit card receivables, PayPay Card Corporation obtains financing from financial institutions, including PayPay Bank Corporation, as a funding method backed by such receivables. The credit card receivables subject to these arrangements are recorded as loans and advances to customers under our assets, and the related financing is recorded as borrowings under our liabilities on our consolidated statements of financial position. See Note 36 to our audited consolidated financial statements included elsewhere in this Annual Report. However, in the case of PayPay Credit, we will make the advance payment to the merchant, and PayPay Card Corporation will liquidate the card receivables and collect them from the user. See “Item 4. Information on the Company—B. Business Overview—Our Products and Services—Payment Services” for a description of the payment flows.\n\nOur cash outlays include principally the costs related to the promotion and marketing of our services to acquire new merchants and registered users, the development of our software and services, as well as selling, general and administrative expenses.\n\nCapital Expenditures\n\nFor the year ended March 31, 2026, we invested ¥24,192 million in capital expenditures, principally towards in-house and outsourced software development. Capital expenditures are recorded as purchases of property and equipment and purchases of intangible assets (largely attributable to customer-facing tangible and intangible assets such as capitalized system development costs and physical cards) in our consolidated statements of cash flows, which were ¥6,369 million and ¥17,823 million, respectively, in the year ended March 31, 2026, compared to ¥4,822 million and ¥17,264 million, respectively, in the year ended March 31, 2025 and ¥4,584 million and ¥17,911 million, respectively, in the year ended March 31, 2024.\n\nWe currently expect our capital expenditures to continue to consist primarily of investments in intangible assets, including capitalized software development costs and certain capitalized customer acquisition costs, mainly for PayPay Corporation and PayPay Card Corporation, as well as software investments at PayPay Bank Corporation and PayPay Securities Corporation. We currently do not expect future capital expenditures to be driven by any single large-scale project, but rather by ongoing development, maintenance and enhancement of our existing services, new\n\n89\n\n[Table of Contents](#toc_page)\n\n \n\nfeatures and investments to support the continued growth and scaling of our payment and financial services businesses. We expect to fund these capital expenditures primarily through cash and cash equivalents and cash flows from operating activities.\n\nIn addition, as of March 31, 2026, we had certain commitments for capital expenditures and other purchase obligations, primarily related to software, cloud and other system-related investments. We expect to fund these commitments primarily through cash and cash equivalents and cash flows from operating activities and, as needed, available credit facilities and other borrowings. For commitments, see Note 39 to our audited consolidated financial statements included elsewhere in this Annual Report.\n\nStrategic Investments and Other Material Cash Requirements Relating to the Acquisition of T&D Financial Life Insurance Company\n\nWe may incur cash requirements in connection with our publicly announced strategic acquisition transaction involving the acquisition of a controlling interest in T&D Financial Life Insurance Company. Based on our current evaluation, the aggregate consideration for such transaction, if consummated, may require us to use a combination of internal funds and external financing.\n\nWe currently expect to prioritize the use of internally generated funds and available proceeds from our recent equity financing, and to supplement any funding shortfall with additional debt financing, depending on transaction structure, timing and market conditions. If the transaction is consummated, it could materially affect our liquidity, capital resources and indebtedness profile. See \"Item 4. Information on the Company—History and development of the company—Principal Capital Expenditures and Divestitures for the expected capital requirement.\n\nThe timing and amount of any related cash outflows remain subject to the execution of definitive agreements, the satisfaction of closing conditions and the final financing structure. Accordingly, there can be no assurance that such transaction will be consummated on the currently contemplated terms or timetable, or at all.\n\nDebt Service and Contractual Obligations\n\nAs of March 31, 2026, loan payables and commercial papers on our consolidated statement of financial position was ¥564,956 million. As of March 31, 2025, loan payables and commercial papers on our consolidated statement of financial position was ¥399,578 million. The increase from March 31, 2025 to March 31, 2026 was due mainly to an increase in the balance of securitization of loans and advances to customers by PayPay Card Corporation and an increase in the balance of repurchase agreements by PayPay Bank Corporation. All our loan payables and commercial paper are denominated in Japanese yen.\n\nAs of March 31, 2026, the weighted average interest rate of the outstanding loan payables was 0.80% and the weighted average interest rate of the outstanding commercial paper was 0.95%. Commercial paper, intercompany loans and a portion of our borrowings from financial institutions are in part subject to fixed interest rates, while a portion of our borrowings from financial institutions and the liquidation arrangements for credit card receivables are subject to floating interest rates based on a spread over yen Tokyo InterBank Offered Rate. A portion of the liquidation arrangements for credit card receivables is subject to fixed interest rates based on the Tokyo Overnight Average rate. As of March 31, 2026, ¥271,331 million, or 55.2%, of the outstanding loan payables bore fixed interest rates, and ¥220,625 million, or 44.8%, bore floating interest rates.\n\nCertain of our loan payables, including those arising from PayPay Card Corporation’s liquidation arrangements for credit card receivables, special overdraft facility agreements and a term loan, are subject to certain covenants as described below. As of March 31, 2026, ¥269,200 million of our loan payables were from such borrowings.\n\nLiquidation Arrangements\n\nUnder the terms of PayPay Card Corporation’s liquidation arrangements for credit card receivables, the following events are specified as triggering cancellation of the relevant agreements:\n\n•\nPayPay Card Corporation ceases to be a subsidiary of LY Corporation.\n\n•\nThe amount of total net assets on the non-consolidated balance sheet of PayPay Card Corporation must be maintained at a level higher than 75% of that for the immediately preceding fiscal year.\n\n•\nPayPay Card Corporation records an operating loss on its non-consolidated profit and loss statements for two consecutive years.\n\n•\nPayPay Card Corporation records an ordinary loss, which generally corresponds to operating profit/loss and non-operating profit/loss excluding certain extraordinary profit/loss, for two consecutive fiscal years.\n\n90\n\n[Table of Contents](#toc_page)\n\n \n\nIn addition, under the terms of PayPay Card Corporation’s liquidation arrangements for credit card receivables, early redemption or pro-rata redemption is triggered if certain indicators, including the indicator calculated based on the amount of securitized receivables collected over a given period, do not meet the requirements specified under the agreements.\n\nIn addition, under the terms of the liquidation arrangements, a backup servicer takes over PayPay Card Corporation’s role as a servicer of collecting receivables and is required to pay collected money pursuant to the relevant agreements if certain events occur, including the following:\n\n•\nPayPay Card Corporation has ceased to be a consolidated subsidiary of LY Corporation.\n\n•\nPayPay Card Corporation’s issuer rating falls below BB+ or PayPay Card Corporation is placed on negative watch by a designated rating agency.\n\n•\nLY Corporation’s issuer rating falls below BBB+ or LY Corporation is placed on negative watch by a designated rating agency, or the entrustor has ceased to be a consolidated subsidiary of LY Corporation, if PayPay Card Corporation does not have an issuer rating provided by a designated rating agency.\n\nNone of the events described above occurred for the years ended March 31, 2023, 2024, 2025 and 2026.\n\nSpecial Overdraft Facility\n\nPursuant to a special overdraft facility agreement with Mizuho Bank, Ltd., mandatory repayment is triggered if PayPay Corporation ceases to be a consolidated subsidiary of LY Corporation. Under a special overdraft facility agreement with PayPay Card Corporation, PayPay Card Corporation is required to maintain its status as a consolidated subsidiary of LY Corporation. PayPay Corporation and PayPay Card Corporation were in compliance with these requirements for the years ended March 31, 2023, 2024, 2025, and 2026.\n\nTerm Loan\n\nUnder the terms of a term loan, PayPay Card Corporation is subject to certain covenants including the following:\n\n•\nPayPay Card Corporation and Yahoo Japan Corporation (currently LY Corporation after its merger with Z Holdings Corporation) must maintain their status as consolidated subsidiaries of Z Holdings Corporation (currently LY Corporation after its merger with Yahoo Japan Corporation).\n\n•\nThe total amount of net assets on the non-consolidated balance sheet as of the last day of each fiscal year must be higher than (i) 75% of that of the immediately preceding fiscal year or (ii) 75% of that of the year ended March 31, 2021, whichever is higher.\n\n•\nPayPay Card Corporation must not record an operating loss on its non-consolidated statements of profit or loss for two consecutive fiscal years.\n\n•\nPayPay Card Corporation was in compliance with all of the above covenants for the years ended March 31, 2023, 2024, 2025 and 2026.\n\nFor additional information on the borrowing arrangements of PayPay Card Corporation, see Note 22 to our audited consolidated financial statements included elsewhere in this Annual Report.\n\nFinancial Liabilities\n\nThe following table details the balance of our financial liabilities by repayment date as of March 31, 2026. The contractual cash flow amounts below reflects cash flows presented on an undiscounted cash flow basis, including interest expense.\n\n \n\n \n\nBook value\n\n \n\nContractual\ncash flow\n\n \n\nWithin\n1 year\n\n \n\nWithin\n1-2 years\n\n \n\nWithin\n2-3 years\n\n \n\nWithin\n3-4 years\n\n \n\nWithin\n4-5 years\n\n \n\nMore than\n5 years\n\nNon-derivative financial liabilities\n\n \n\n(in millions of yen)\n\nDeposits\n\n \n\n2,952,495\n\n \n\n2,952,536\n\n \n\n2,935,149\n\n \n\n5,118\n\n \n\n4,540\n\n \n\n1,204\n\n \n\n2,222\n\n \n\n4,303\n\nAccounts payable\n\n \n\n1,122,338\n\n \n\n1,122,338\n\n \n\n1,122,338\n\n \n\n—\n\n \n\n—\n\n \n\n—\n\n \n\n—\n\n \n\n—\n\nBorrowings\n\n \n\n564,956\n\n \n\n566,243\n\n \n\n392,273\n\n \n\n67,883\n\n \n\n92,747\n\n \n\n11,813\n\n \n\n1,376\n\n \n\n151\n\nOther financial liabilities\n\n \n\n46,748\n\n \n\n46,748\n\n \n\n46,430\n\n \n\n106\n\n \n\n106\n\n \n\n106\n\n \n\n—\n\n \n\n—\n\nLease liabilities\n\n \n\n9,549\n\n \n\n9,924\n\n \n\n2,475\n\n \n\n2,353\n\n \n\n2,257\n\n \n\n1,823\n\n \n\n770\n\n \n\n246\n\nDerivative financial liabilities\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nOther financial liabilities\n\n \n\n1,368\n\n \n\n1,368\n\n \n\n1,368\n\n \n\n—\n\n \n\n—\n\n \n\n—\n\n \n\n—\n\n \n\n—\n\nTotal financial liabilities\n\n \n\n4,697,454\n\n \n\n4,699,157\n\n \n\n4,500,033\n\n \n\n75,460\n\n \n\n99,650\n\n \n\n14,946\n\n \n\n4,368\n\n \n\n4,700\n\nOff-balance sheet item\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nUndrawn loan commitments\n\n \n\n—\n\n \n\n10,622,322\n\n \n\n10,622,322\n\n \n\n—\n\n \n\n—\n\n \n\n—\n\n \n\n—\n\n \n\n—\n\n \n\n91\n\n[Table of Contents](#toc_page)\n\n \n\nLines of Credit\n\nWe have lines of credit with financial institutions for borrowing arrangements. As of March 31, 2026, our lines of credit totaled ¥803,973 million, and the remaining amounts available under our lines of credit as of March 31, 2026 were ¥823,724 million.\n\nFunding and Treasury Policy\n\nWe manage liquidity and funding risks at both PayPay Corporation and the relevant subsidiary level, taking into account the nature of our businesses and applicable regulatory and contractual requirements. PayPay Corporation’s Risk Management Department monitors our group-level liquidity risk status on a monthly basis. Our cash and capital requirements are principally denominated in Japanese yen, and our cash and cash equivalents are held principally in Japanese yen. As of March 31, 2026, substantially all of our loan payables and commercial paper were denominated in Japanese yen.\n\nWe use certain financial instruments for hedging or risk management purposes in the ordinary course of business. We do not use financial instruments for speculative purposes. For additional information, see Note 36 to our audited consolidated financial statements included elsewhere in this Annual Report.\n\nCertain funds held by our regulated subsidiaries may be subject to legal, regulatory or contractual restrictions and may not be readily available for transfer to PayPay Corporation in the form of dividends, loans, advances or other distributions. These restrictions include capital adequacy, capital maintenance and other regulatory requirements applicable to PayPay Bank Corporation, PayPay Card Corporation and PayPay Securities Corporation. As a result, a portion of cash and net assets at these subsidiaries is not freely distributable to the parent, PayPay Corporation. Nevertheless, we believe that parent-level liquidity, expected cash flows from operations and available credit facilities are sufficient to meet our cash obligations for the next twelve months.\n\nCash Flows\n\nWe believe that our current available cash and cash equivalents and our credit facilities will be sufficient to meet our working capital requirements and capital expenditures in the ordinary course of business for a period of at least twelve months from March 31, 2026.\n\nOver the longer term, beyond the next twelve months, we expect our principal cash requirements to include funding for growth in loans and advances to customers and credit card receivables, investments in software and system development, regulatory capital and guarantee deposit requirements, repayment or refinancing of borrowings and commercial paper, and potential strategic investments. We expect to fund these requirements primarily through cash flow from operating activities, existing credit facilities, liquidation arrangements for credit card receivables, borrowings, commercial paper and, if necessary, additional debt or equity financing.\n\nThe following tables show our consolidated cash flow data for the years ended March 31, 2024, 2025 and 2026:\n\n \n\n \n\nFor the year ended\n\n \n\n \n\nMarch 31, 2024\n\n \n\nMarch 31, 2025\n\n \n\nMarch 31, 2026\n\n \n\n \n\n(in millions of yen)\n\nCash and cash equivalents at the beginning of the period\n\n \n\n859,313\n\n \n\n744,323\n\n \n\n369,811\n\nNet cash provided by (used in) operating activities\n\n \n\n49,975\n\n \n\n155,849\n\n \n\n375,297\n\nNet cash provided by (used in) investing activities\n\n \n\n(273,383)\n\n \n\n(319,977)\n\n \n\n(628,827)\n\nNet cash provided by (used in) financing activities\n\n \n\n107,930\n\n \n\n(210,325)\n\n \n\n246,752\n\nEffect of exchange rate changes on cash and cash equivalents\n\n \n\n488\n\n \n\n(59)\n\n \n\n50\n\nIncrease (decrease) in cash and cash equivalents\n\n \n\n(114,990)\n\n \n\n(374,512)\n\n \n\n(6,728)\n\nCash and cash equivalents at the end of the period\n\n \n\n744,323\n\n \n\n369,811\n\n \n\n363,083\n\nOperating Activities\n\nNet cash provided by operating activities was ¥375,297 million in the year ended March 31, 2026, primarily attributable to profit before tax of ¥74,495 million, adjusted for positive non-cash items consisting of depreciation and amortization of ¥25,482 million, loss on disposal of property and equipment and intangible assets of ¥1,338 million and share-based payment expenses of ¥1,847 million, partially offset by negative non-cash items consisting of other income and costs of ¥1,517 million. The amount was further adjusted for changes in itemized balances of assets and liabilities that had a negative effect on operating cash flow, which primarily consisted of an increase in loans and advances to customers of ¥585,244 million, as well as certain changes in itemized balances of assets and liabilities that had a positive effect on operating cash flow, including primarily an increase in deposits of ¥566,556 million, an increase in accounts payable of ¥173,856 million and a decrease in guarantee deposits of ¥170,090 million.\n\nNet cash provided by operating activities was ¥155,849 million in the year ended March 31, 2025, primarily attributable to profit before tax of ¥34,961 million, adjusted for positive non-cash items consisting of depreciation and\n\n92\n\n[Table of Contents](#toc_page)\n\n \n\namortization of ¥21,391 million, loss on disposal of property and equipment and intangible assets of ¥696 million and other income and costs of ¥618 million. The amount was further adjusted for changes in itemized balances of assets and liabilities that had a negative effect on operating cash flow, which primarily consisted of an increase in loans and advances to customers of ¥399,055 million, as well as certain changes in itemized balances of assets and liabilities that had a positive effect on operating cash flow, including primarily an increase in deposits of ¥249,362 million, an increase in accounts payable of ¥145,558 million and a decrease in guarantee deposits of ¥77,656 million.\n\nNet cash provided by operating activities was ¥49,975 million in the year ended March 31, 2024, primarily attributable to profit before tax of ¥11 million, adjusted for positive non-cash items consisting of depreciation and amortization of ¥18,591 million and loss on disposal of property and equipment and intangible assets of ¥1,495 million, partially offset by negative non-cash items consisting of other income and costs of ¥1,552 million. The amount was further adjusted for changes in itemized balances of assets and liabilities that had a negative effect on operating cash flow, which primarily consisted of an increase in loans and advances to customers of ¥311,125 million and an increase in securities of ¥45,476 million, as well as certain changes in itemized balances of assets and liabilities that had a positive effect on operating cash flow, including primarily an increase in deposits of ¥260,400 million and an increase in accounts payable of ¥130,744 million.\n\nInvesting Activities\n\nNet cash used in investing activities was ¥628,827 million in the year ended March 31, 2026, which was primarily attributable to purchase of securities of ¥779,962 million, purchase of intangible assets of ¥17,823 million, purchases of investments accounted for using the equity method of ¥11,655 million, purchase of property and equipment of ¥6,369 million and other of ¥2,302 million, partially offset by proceeds from sales/redemption of securities of ¥189,284 million.\n\nNet cash used in investing activities was ¥319,977 million in the year ended March 31, 2025, which was primarily attributable to purchase of securities of ¥463,314 million, purchase of intangible assets of ¥17,264 million, payments for acquisition of subsidiaries of ¥5,759 million, other of ¥5,343 million, purchase of property and equipment of ¥4,822 million and purchases of investments accounted for using the equity method of ¥1,360 million, partially offset by proceeds from sales/redemption of securities of ¥177,885 million.\n\nNet cash used in investing activities was ¥273,383 million in the year ended March 31, 2024, which was primarily attributable to payments of deposits with a related party of ¥600,000 million, purchase of securities of ¥437,408 million, purchase of intangible assets of ¥17,911 million and purchase of property and equipment of ¥4,584 million and other of ¥3,316 million, partially offset by proceeds from withdrawal of deposits with a related party of ¥600,000 million and proceeds from sales/redemption of securities of ¥189,836 million.\n\nFinancing Activities\n\nNet cash provided by financing activities was ¥246,752 million in the year ended March 31, 2026, which was primarily attributable to proceeds from long-term borrowings of ¥722,600 million, proceeds from issuance of new common shares of ¥217,522 million and net increase in short-term borrowings of ¥199,982 million, partially offset by repayments of long-term borrowings of ¥757,203 million and payment for the purchase of the equity interest of a subsidiary, through business combinations of entities under common control of ¥130,185 million.\n\nNet cash used in financing activities was ¥210,325 million in the year ended March 31, 2025, which was primarily attributable to repayment of long-term borrowings of ¥917,898 million, net decrease in short-term borrowings of ¥128,700 million and partially offset by proceeds from long-term borrowings of ¥842,300 million.\n\nNet cash provided by financing activities was ¥107,930 million in the year ended March 31, 2024, which was primarily attributable to proceeds from long-term borrowings of ¥595,100 million and net increase in short-term borrowings of ¥30,000 million and partially offset by repayment of long-term borrowings of ¥516,422 million.\n\nRegulatory Capital Requirements\n\nThe Basel Committee has issued “A global regulatory framework for more resilient banks and banking systems,” or Basel III, outlining the global regulations for stronger bank capital adequacy. Under Basel III requirements, the capital adequacy ratio is calculated by dividing adjusted capital by risk-weighted assets.\n\nCore capital is calculated based on the amount of qualifying instruments and reserves, with certain regulatory adjustments. Risk-weighted assets generally include credit risk-weighted assets, the equivalent amount of market risk divided by 8% and the equivalent amount of operational risk divided by 8%. In calculating the capital adequacy ratio of PayPay Bank Corporation, we have adopted the standardized approach to calculate the amount of the credit risk weighted assets of PayPay Bank Corporation, as well as the standardized approach to assess the equivalent amount of\n\n93\n\n[Table of Contents](#toc_page)\n\n \n\noperational risk. We have adopted exemptions for market risk amounts because we are not proactively taking market risk and fulfill the requirements for such exemptions.\n\nIf the capital adequacy ratio of a financial institution falls below the required level, the FSA may, depending upon the extent of capital deterioration, take certain corrective actions, including requiring the financial institution to submit an improvement plan to strengthen its capital base, reduce its total assets, restrict its business operations or other actions that could have a material effect on its financial statements. The minimum capital adequacy ratio applicable to Japanese banks without certain international operations is 4%.\n\nThe table below presents the capital adequacy ratio, core capital, total capital and risk-weighted assets of PayPay Bank Corporation under Japanese GAAP.\n\n \n\n \n\nAs of and for the year ended March 31,\n\n \n\n \n\n2025\n\n \n\n2026\n\n \n\n \n\n(in millions of yen, except ratios)\n\nCapital adequacy ratio\n\n \n\n16.76%\n\n \n\n14.04%\n\nCore capital\n\n \n\n145,215\n\n \n\n157,147\n\nTotal capital\n\n \n\n132,575\n\n \n\n144,202\n\nRisk-weighted assets\n\n \n\n790,957\n\n \n\n1,026,786\n\nWe, PayPay Card Corporation and PayPay Securities Corporation are also required to maintain capital-related ratios and equity balances as defined by the capital regulations presented below.\n\n \n\n \n\n \n\n \n\n \n\nCompany\n\n \n\nLaws and regulations\n\n \n\nRequirements\n\nPayPay Corporation\n\n \n\nPayment Services Act\n\n \n\nMaintenance of minimum required equity amount\n\nPayPay Card Corporation\n\n \n\nInstallment Sales Act\n\n \n\nMaintenance of minimum required equity ratio\n\nPayPay Securities Corporation\n\n \n\nFinancial Instruments and Exchange Act\n\n \n\nMaintenance of minimum required capital-to-risk ratio\n\nWe, PayPay Card Corporation and PayPay Securities Corporation are in compliance with the capital requirements under the relevant laws and regulations.\n\nC Research and development, patents and licenses, etc.\n\nThe Company invests in the development and enhancement of its payment settlement platform and related software applications to support its services. Software development is conducted both by the Company's employees and through engagements with third-party service providers.\n\nFor information regarding research and development expenses, see Note 16 to the consolidated financial statements included elsewhere in this Annual Report.\n\n \n\nD Trend information\n\n \n\nOther than as disclosed elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the fiscal year ended March 31, 2026 that are reasonably likely to have a material and adverse effect on our revenue, income, profitability, liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future results of operations or financial conditions.\n\n \n\nE Critical Accounting Estimates\n\n \n\nThe preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements as well as the reported amounts of revenue and expenses during the reporting period. We base our estimates and assumptions on historical experiences and on various other factors that are believed to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions. Refer to Note 4, Critical Accounting Judgments and Key Sources of Estimation Uncertainty to our audited consolidated financial statements included in this Annual Report for further details on our critical accounting estimates and judgments.\n\n94\n\n[Table of Contents](#toc_page)\n\n \n\nOur significant accounting policies are provided in Note 3 to our audited consolidated financial statements included in this Annual Report.\n\nRecent Accounting Pronouncements\n\nThere were no new or amended IFRS that became effective during the year ended March 31, 2026 that had a material impact on our consolidated financial statements.\n\nWe assess the potential impact of new and revised accounting standards on an ongoing basis. As of the date of this Annual Report, no issued but not yet effective IFRS standards are expected to have a material effect on our financial condition, results of operations, or cash flows upon adoption. For a detailed discussion of accounting standards issued but not yet effective, see Note 5 to our audited consolidated financial statements included in this Annual Report.\n\nNon-IFRS Financial Measures\n\nIn evaluating our business, we consider and use Adjusted EBITDA and Adjusted EBITDA Margin, which are non-IFRS financial measures, as supplemental measures to review and assess our operating performance. The presentation of these non-IFRS financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with IFRS. We define Adjusted EBITDA as profit (loss) for the year (period) plus income tax expense (benefit), share of profit (loss) of investments accounted for using the equity method, depreciation and amortization, share-based payment expenses, amortization of contract cost, loss on disposal of property and equipment and intangible assets, listing-related expenses, M&A-related expenses and net interest expense (income) from corporate borrowings and treasury assets. Share of profit (loss) of investments accounted for using the equity method includes share of loss of a joint venture accounted for using the equity method.\n\nThese non-IFRS financial measures enable our management to assess our operating results without considering the impact of items that we do not consider to be indicative of the results of our ongoing operations, such as certain non-cash items. We also believe that the use of these non-IFRS measures facilitate investors’ assessment of our operating performance and is useful to facilitate comparisons to historical performance.\n\nThese non-IFRS financial measures are not defined under IFRS and are not presented in accordance with IFRS. These non-IFRS financial measures have limitations as an analytical tool. These non-IFRS financial measures do not reflect all items of expense that affect our operations. Further, these non-IFRS measures may differ from the non-IFRS information used by other companies, including peer companies, and therefore the comparability may be limited.\n\nWe compensate for these limitations by reconciling these non-IFRS financial measures to the most directly comparable IFRS performance measure, which should be considered when evaluating our performance. We encourage you to review our financial information in its entirety and not rely on a single financial measure.\n\nThe following tables reconcile Adjusted EBITDA from profit (loss) for the year, which is the most directly comparable financial measure calculated and presented in accordance with IFRS, for the periods presented. The adjustments presented below are primarily depreciation expenses that do not result in a cash outflow, temporary expenses and non-operating income and expenses.\n\n \n\n95\n\n[Table of Contents](#toc_page)\n\n \n\n \n\n \n\nFor the year ended March 31,\n\n \n\n \n\n2024\n\n \n\n2025\n\n \n\n2026\n\n \n\n \n\n(in millions of yen, except percentages)\n\nProfit (loss) for the year (period)\n\n \n\n¥(830)\n\n \n\n¥39,157\n\n \n\n¥117,810\n\nAdd: Income tax expense (benefit)\n\n \n\n841\n\n \n\n(4,196)\n\n \n\n(37,865)\n\nAdd: Share of loss of investments accounted\n   for using the equity method (1)\n\n \n\n—\n\n \n\n549\n\n \n\n137\n\nAdd: Depreciation and amortization\n\n \n\n17,549\n\n \n\n20,093\n\n \n\n23,758\n\nAdd: Share-based payment expenses (2)\n\n \n\n—\n\n \n\n—\n\n \n\n1,730\n\nAdd: Amortization of contract cost\n\n \n\n1,043\n\n \n\n1,297\n\n \n\n1,724\n\nAdd: Loss on disposal of property and equipment and\n   intangible assets\n\n \n\n1,674\n\n \n\n702\n\n \n\n1,356\n\nAdd: Listing-related expenses (3)\n\n \n\n286\n\n \n\n302\n\n \n\n2,202\n\nAdd: M&A-related expenses (4)\n\n \n\n17\n\n \n\n330\n\n \n\n593\n\nAdd: Net interest expense (income) from corporate\n   borrowings and treasury assets (5)\n\n \n\n498\n\n \n\n416\n\n \n\n(316)\n\nAdjusted EBITDA\n\n \n\n¥21,078\n\n \n\n¥58,650\n\n \n\n¥111,130\n\nDivided by: Total revenue\n\n \n\n254,611\n\n \n\n299,078\n\n \n\n380,662\n\nAdjusted EBITDA Margin (6)\n\n \n\n8%\n\n \n\n20%\n\n \n\n29%\n\n(1) Share of loss of investments accounted for using the equity method includes share of loss of a joint venture accounted for using the equity method.\n\n(2) Share-based payment expenses represent compensation granted to directors, officers, and employees in exchange for their services, consisting of equity-settled awards (non-cash expenses) and cash-settled awards (expenses involving future cash outflows). These expenses are recognized by allocating the fair value of each award over its respective vesting period. Prior to the IPO on March 12, 2026, no share-based payment expenses were recognized as the vesting conditions had not been met. Following the completion of PayPay’s IPO, the cumulative expense recognition commenced in the fourth quarter ended March 31, 2026. Notably, in the calculation of Adjusted EBITDA, only equity-settled share-based payment expenses are adjusted as non-cash items, while cash-settled expenses are not adjusted.\n\n(3) Listing-related expenses consist of the fees and expenses of the professional advisors that we hired in connection with the preparations for our initial public offering.\n\n(4) M&A-related expenses, which consist of the fees and expenses of the professional advisors that we hired in connection with acquisitions and investments, such as our acquisition of PayPay Bank Corporation and PayPay Securities Corporation and accrued expenses related to holdbacks in connection with a prior acquisition.\n\n(5) Net interest expense (income) from corporate borrowings and treasury assets comprises interest expense on borrowings from LY Corporation, offset by interest income derived from guarantee deposits, cash and cash equivalents, and Japanese government securities within the payment segment.\n\n(6) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by total revenue.\n\n96\n\n[Table of Contents](#toc_page)\n\n \n\nOther Key Metrics\n\n \n\n \n\nFor the year ended March 31,\n\n \n\n \n\n2024\n\n \n\n2025\n\n \n\n2026\n\n \n\n \n\n(in millions of yen, unless otherwise indicated)\n\nOperating profit\n\n \n\n¥11\n\n \n\n¥35,510\n\n \n\n¥80,082\n\nOperating profit margin\n\n \n\n—%\n\n \n\n12%\n\n \n\n21%\n\nProfit (loss) for the year (period)\n\n \n\n¥(830)\n\n \n\n¥39,157\n\n \n\n¥117,810\n\nProfit (loss) for the year (period) margin\n\n \n\n—%\n\n \n\n13%\n\n \n\n31%\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\nNon-IFRS Financial Measure:\n\n \n\n \n\n \n\n \n\n \n\n \n\nAdjusted EBITDA (1)\n\n \n\n¥21,078\n\n \n\n¥58,650\n\n \n\n¥111,130\n\nAdjusted EBITDA Margin (2)\n\n \n\n8%\n\n \n\n20%\n\n \n\n29%\n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n \n\n(in trillions of yen, unless otherwise indicated)\n\nOperating Metrics:\n\n \n\n \n\n \n\n \n\n \n\n \n\nConsolidated\n\n \n\n \n\n \n\n \n\n \n\n \n\nTotal GMV (3)\n\n \n\n¥12.73\n\n \n\n¥15.68\n\n \n\n¥19.36\n\nPayment segment\n\n \n\n \n\n \n\n \n\n \n\n \n\nPayment Segment GMV (4)\n\n \n\n¥12.46\n\n \n\n¥15.39\n\n \n\n¥19.03\n\nTake Rate (5)\n\n \n\n1.70%\n\n \n\n1.61%\n\n \n\n1.64%\n\nCost Rate (6)\n\n \n\n1.73%\n\n \n\n1.42%\n\n \n\n1.30%\n\nPayPay MTU (millions of users) (7)\n\n \n\n33.2\n\n \n\n37.2\n\n \n\n41.0\n\nPayPay Number of Transactions (millions of\n   transactions) (8)\n\n \n\n6,367.7\n\n \n\n7,806.6\n\n \n\n9,243.4\n\nFinancial service segment\n\n \n\n \n\n \n\n \n\n \n\n \n\nPayPay Bank Balance of Deposits (billions of yen) (9)\n\n \n\n¥1,685.2\n\n \n\n¥1,841.0\n\n \n\n¥2,269.1\n\nPayPay Bank Balance of Loans (billions of yen) (10)\n\n \n\n¥723.8\n\n \n\n¥926.9\n\n \n\n¥1,238.6\n\n(1) Adjusted EBITDA is defined as profit for the year (period) plus income tax expense (benefit), share of loss of investments accounted for using the equity method, depreciation and amortization, loss on disposal of property and equipment and intangible assets, share-based payment expense, amortization of contract cost, listing-related expenses, M&A-related expenses and net interest expense (income) from corporate borrowings and treasury assets. Share of profit (loss) of investments accounted for using the equity method includes share of loss of a joint venture accounted for using the equity method.\n\n(2) Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Total Revenue.\n\n(3) Total GMV, or gross merchandise value, is defined as the total of PayPay Balance GMV, PayPay Credit GMV, PayPay Card GMV and PayPay Bank Visa Debit Card GMV, excluding the GMV of cancelled transactions. PayPay Bank Visa Debit Card GMV is defined as payments made using PayPay Bank Visa Debit Card (physical card) and Cardless Visa Debit transaction volume for both personal and corporate use, excluding the GMV of PayPay Debit GMV and ATM withdrawal amounts when using the cash card function, excluding the GMV of any cancelled transactions.\n\n(4) Payment Segment GMV is defined as the total of PayPay Balance GMV, PayPay Credit GMV and PayPay Card GMV, excluding the GMV of cancelled transactions.\n\n(5) Take Rate is defined as Payment segment’s Total Revenue divided by Payment Segment GMV (which includes PayPay Balance, PayPay Credit, and PayPay Card GMV).\n\n(6) Cost Rate is defined as Payment segment’s operating expenses divided by Payment Segment GMV (which includes PayPay Balance, PayPay Credit, and PayPay Card GMV).\n\n(7) PayPay MTU is defined as the number of unique users who completed at least one payment per month that contributes to PayPay Balance or PayPay Credit GMV, but excluding P2P (peer-to-peer) money transfers and cancelled transactions. PayPay MTU over a quarterly or annual period represents the figure from the last month in the relevant period.\n\n(8) PayPay Number of Transactions is defined as the total number of completed transactions that contribute to PayPay Balance GMV or PayPay Credit GMV, but excluding P2P (peer-to-peer) money transfers and cancelled transactions.\n\n(9) PayPay Bank Balance of Deposits is defined as the sum of demand deposit and time deposit.\n\n(10) PayPay Bank Balance of Loans is defined as the sum of mortgage loans, overdraft and other.\n\n97\n\n[Table of Contents](#toc_page)"}