Japan’s Rakuten Group has unveiled a strategic plan to merge its payments and points businesses into its credit card unit, aiming to enhance its financial outlook. Despite consistent e-commerce revenue, the company’s prolonged financial struggles, linked to its mobile phone business, have prompted this consolidation move which could potentially lead to listing its credit card arm.
11 August 2023 – In a strategic move aimed at bolstering its financial position, Japan’s Rakuten Group has announced its plan to merge its payments and points businesses into its credit card subsidiary. The company’s persistent financial challenges, attributed to the costly expansion of its mobile phone division, have prompted this consolidation strategy which could potentially lead to the eventual listing of its credit card arm.
Despite sustaining substantial revenue from its core e-commerce ventures, Rakuten has faced a string of twelve consecutive quarters of financial losses. This downturn has largely been attributed to the capital-intensive expansion of its mobile phone operations, which have struggled to gain traction within the Japanese market.
Rakuten has responded by divesting several of its business units, such as the widely-used Rakuten Bank, in an effort to infuse cash into its operations. As part of the consolidation strategy unveiled today, the company intends to integrate its payments and points divisions into its Rakuten Card subsidiary, which manages credit card and loan services. This consolidation aims to position Rakuten Card as a pivotal entity within its payment ecosystem, with the potential for forging strategic alliances with external companies and exploring independent capital-raising initiatives.
The integral role of points and payments in Rakuten’s business model has been pivotal in engaging customers across a broad spectrum of offerings. Users are incentivized to accumulate points through the utilization of Rakuten credit cards, shopping experiences, and insurance services. These accrued points offer versatile applications, from purchasing groceries to settling bills and even booking travel arrangements.
At its recent quarterly earnings briefing, Rakuten articulated its commitment to shun additional gross debt, opting instead for equity-related financing to mitigate its debt obligations. The conglomerate currently carries a total debt of 1.9 trillion yen ($13.22 billion), with obligations of 406 billion yen due in 2024 and an additional 430 billion yen in 2025, according to Refinitiv data.
In the fiscal period spanning April to June, Rakuten disclosed an operating loss of 48.9 billion yen ($340.13 million), a slight improvement from the anticipated loss of 51.2 billion yen. Notably, the losses within the mobile segment have narrowed to 82.4 billion yen due to augmented average revenue per user and an increased subscriber base. This announcement follows the recent departure of Tareq Amin, Chief Executive of the mobile unit since March 2022.
Rakuten’s strategic pivot to consolidate its payments and points enterprises into its credit card subsidiary underscores its ongoing efforts to navigate financial challenges and optimize its business portfolio. – source: Reuters