TOKYO/NEW YORK (Reuters) -Investors expect the valuation of PayPay could exceed 3 trillion yen ($20 billion) as SoftBank prepares for an initial public offering of the Japanese payments app operator in the United States as early as December, according to two sources.

SoftBank has been meeting with institutional investors since mid-September to discuss potential valuations in the IPO, the sources, who are familiar with the matter, said.

Investors see 2 trillion yen as a baseline but expect the valuation could top 3 trillion yen, according to the sources.

The potential valuation and the views of investors are being reported by Reuters for the first time. PayPay declined to comment.

The sources declined to be named as the information is not public, and cautioned that deliberations are continuing and factors including valuation remain subject to market conditions.

The deliberations come as the U.S. IPO market enjoyed its busiest quarter since the fourth quarter of 2021, with companies raising $24 billion through first-time share sales in the third quarter, according to Dealogic.

The baseline valuation is based on expansion of PayPay's Japanese business but there is a range of views among investors about its prospects for growing its overseas footprint, which could support a higher valuation, one of the sources said.

PayPay announced last month that users would be able to make payments abroad, beginning with South Korea, which is a popular foreign destination for Japanese travellers.

"The key focus going forward will be to what extent overseas expansion can be realistically pictured as a growth story, given the lack of business foundations not only in the U.S. but also in Asia," said the source.

PayPay has played a role in encouraging Japanese consumers to move away from a long-standing preference for cash by offering rebates on payments through its mobile app.

It is the market leader in QR code payments and also offers services including banking and credit cards. Reuters reported in August SoftBank has selected investment banks for the potential IPO.

Japan's cashless payments ratio exceeded 40% last year, compared to more than 80% in South Korea and China. The industry ministry aims to lift that further, as part of efforts to cut costs and address labour shortages.

SoftBank's telecoms arm reported that operating profit at its financial segment, which includes PayPay, more than doubled to 18.1 billion yen in the April-June quarter.

"Structural profit improvement is progressing, and future growth can be anticipated," said SBI Securities analyst Yukari Housui.

PayPay is taking steps to bolster its cryptocurrency business. Last week PayPay said it has acquired a 40% stake in the Japanese business of Binance and plans to launch new crypto services.

PayPay's ownership is split between a number of SoftBank entities: wireless carrier SoftBank Corp ( SFTBF ), the Vision Fund investment arm, and internet business LY Corp ( YAHOF ), which is a joint venture between SoftBank and Naver Corp.

Companies around the world are looking to list in the U.S. as they seek higher valuations. Around 20 Japanese companies have listed there in the last five years although in some cases they have underperformed and later delisted.

Round One, an operator of amusement attractions, is considering overseas listings for two subsidiaries as it expands in the U.S. and looks to boost its brand recognition.

($1 = 153.0800 yen)