Japan FinTech Observer #50

Welcome to the fiftieth edition of the Japan FinTech Observer.

Congratulations to the Financial Services Agency for orchestrating an exciting Japan FinTech Week, and for the personal invitation to a number of events. I also would like to express my gratitude to the Blockchain Governance Initiative Network (BGIN), where I was one of the few paying guests 😀, and was able to follow in-depth debates with a number of super-charged discussants (my brain is still processing).

Tokyo is now on the map next to the Singapore FinTech Festival and Hong Kong FinTech Week, and the date for next year is set. I would love to see more companies targeting their big H1 announcements for Japan FinTech Week, just like they do for Singapore and Hong Kong during H2.

I also had the opportunity to talk to quite a few of those considering doing business with or in Japan. These were people who have money and careers at stake, and their line of questioning was relentlessly probing for the factors that make for a successful market entry, partnerships, etc. They would not have come to Tokyo if they were not seriously considering the market, however, at the same time, there are a number of attractive options globally, including the Middle East, so it is far from certain that the scale will tip Japan’s way. It is pretty competitive out there.

Lastly, those who are already here or prepared to take the next step are seeking the right talent. If you or someone in your network is interested to lead Japan as a new market for an established FinTech accelerator, or you are looking for a change as a policy lead for a reputable crypto firm, please reach out to me.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Verod-Kepple Africa Ventures has a USD 43m war chest; Z Venture Capital invests in CHEQUER (QueryPie), a centralized Cloud Data Protection Platform; Greenway Grid Global has concluded a Simple Agreement for Future Equity with Carbontribe Labs
• Insurance: Smartpay and Chubb Japan will provide cutting-edge digital insurance solutions in Japan, spearheading embedded insurance adoption
• Banking: more than two years after obtaining a banking license in Japan for the second time, Goldman Sachs is closing its bank branch; NTT Docomo acquires 66% of Orix Credit for JPY 79.2bn; Sumitomo Mitsui Financial Group has completed its acquisition of the remaining 25.1% equity stake in SMFG India Credit Company
• Payments: the Digital Currency Forum plans to establish an Invoice Chain Committee in May 2024; Hokuriku Railroad, the Hokuriku Railroad Group, and Hokkoku Financial Holdings will start a boarding service using touch payment-compatible cards; GMO Aozora Net Bank will start offering automatic direct debit for national taxes, social insurance premiums, and national pension insurance premiums
• Capital Markets & Asset Management: PayPay Securities celebrates 1 million accounts, almost doubling the number of opened accounts compared to the end of March 2023
• Digital Assets: SBI Digital Markets in Singapore and CAT Financial Products AG in Zurich announced their partnership; Daiwa Securities Group has taken a 10% stake in, and agreed to a business alliance with Singapore’s Penguin Securities Holdings; Astar Network has deployed its zkEVM Ethereum Layer2 on mainnet; Animoca Brands Japan and KDDI have signed a memorandum of understanding to explore a strategic alliance to accelerate Web3 adoption; Sony has filed a patent involving the use of non-fungible tokens as part of in-game mechanics
• The Last Word: Glass Ceiling

During Japan Fintech Week, Nikkei’s FIN/SUM held its annual startup pitc contest, which brought out four winners: Toggle, Lecto, Bloomo Securities and Fivot.

Venture Capital & Private Markets

• Armed with a $43 million war chest, the Verod-Kepple Africa Ventures leadership team have decades of experience operating and investing in Africa between them; the venture capital firm typically brings on its limited partners, mostly Japanese companies, as co-investors in deals and, in some cases, eventually sets up an acquisition event for its portfolio startups for its investors
• Z Venture Capital invests in CHEQUER (QueryPie), a centralized Cloud Data Protection Platform (CDPP) that enables data access and privacy control for enterprises in a single platform; since its first product launch in Korea in 2020, QueryPie is being used by more than 70% of Korean unicorn startups, with 0% churn rate; the company has recently expanded its client base to domestic enterprises, financial institutions, and even public (government) sectors; the company’s next target market is Japan, which is the 5th largest cloud market in the world
• Greenway Grid Global has concluded a Simple Agreement for Future Equity with Carbontribe Labs OÜ; GGG has been established by Tokyo Electric Power Company, Chubu Electric Power, and ICMG Group as a Joint Venture in Singapore; GGG is working on a PoC for developing an AI model, and creating#NFTs with Carbontribe, and will consider carbon credit-related businesses

My Number on your smartphone

Huge cross-industry news this week, making all my product manager friends giddy.

As the Nikkei reported this week, the Cabinet approved a bill to revise the My Number Act to expand the functions installed on smartphones, and it will be submitted to the current Diet session; the bill is set to take effect within one year after enactment, i.e. by the summer of 2025.

The MynaCard’s IC chip has three main functions: (1) electronic certificate identifying the holder, (2) image data on the face of the card, and (3) textual data of the information written on the face of the card.

Currently, only the digital certificate function is available on some models using Google’s Android. The law will be amended to allow the remaining functions to be used on smartphones. The Digital Agency is negotiating with Apple to make it compatible with the iPhone.

Insurance

• Smartpay has entered into a business partnership with the Japanese entity of Chubb Group; combining Smartpay’s domestic firsts like bank direct debit with Chubb’s extensive insurance innovation expertise, the companies will provide cutting-edge digital insurance solutions in Japan, spearheading embedded insurance adoption

Banking

• The writing was on the wall: more than two years after obtaining a banking license in Japan for the second time, Goldman Sachs was in a “use it or lose” situation; their decision is to close the bank branch, and to cease pursuing the offer of transaction banking services, as widely reported in the media
• NTT Docomo acquires 66% of Orix Credit for JPY 79.2bn; through this partnership with ORIX Credit, Docomo aims to combine its d Point Club membership base of 98.76 million users, the largest in Japan, with ORIX Credit’s strengths in lending business operation, personal lending credit know-how, and new service development capabilities in the lending field, in order to provide a wider range of financial services tailored to customers’ life stages
• Sumitomo Mitsui Financial Group has completed its acquisition of the remaining 25.1% equity stake in SMFG India Credit Company, a consolidated subsidiary of SMFG, from Angelica Investments, which is wholly owned by Fullerton Financial Holdings, a Singapore-headquartered investment company; as a result of the Investment, SMICC will become a wholly owned subsidiary of SMFG

Payments

• Bank of Japan Governor Kazuo Ueda titled his keynote at FIN/SUM “What to Know about Central Bank Digital Currencies”
• The Digital Currency Forum plans to establish an Invoice Chain Committee in May 2024, which will discuss and examine whether an industry-standard system utilizing blockchain technology and the DCJPY digital currency can solve issues related to inter-company settlement, as well as consider the standardization of currently siloed accounting and payment services
• Hokuriku Railroad, the Hokuriku Railroad Group, and Hokkoku Financial Holdings will start a boarding service using touch payment-compatible cards (credit, debit, prepaid) or smartphones with registered cards by utilizing the “stera transit” solution for public transportation provided by Sumitomo Mitsui Card
• GMO Aozora Net Bank will start offering automatic direct debit for national taxes, social insurance premiums, and national pension insurance premiums from April 1 onwards; this service will complement the existing offerings of internet banking transfers and Pay-easy payments
• Koala Sleep Japan has started offering interest free three installment payments on its official online store in co-operation with Smartpay

Capital Markets & Asset Management

• After topping bubble-era highs, Japanese stocks are poised to rise even higher, according to Goldman Sachs Research; two important structural changes are playing out in the Japanese stock market: the country is shifting to an inflationary economy after years of deflation, and corporate governance reforms are taking root
• Nomura published its quarterly outlook for corporate earnings
• PayPay Securities celebrates 1 million accounts; as of February 29, 2024, PayPay Securities almost doubled the number of opened accounts compared to the end of March 2023; PayPay Securities provides “PayPay Asset Management” as a mini app within the cashless payment service “PayPay”; due to the increased attention regarding NISA, the number of new account openings per month from December 2023 onwards is increasing at approximately twice the pace from April to November 2023

Digital Assets

• SBI Digital Markets in Singapore and CAT Financial Products AG in Zurich announced their partnership to establish a strategic manufacturing and distribution channel of structured investment products between Asia and Europe; both companies are actively working on integrating CATFP’s issuance capabilities as well as its price discovery and lifecycle management platform into SBIDM’s operations, and the first structured products are expected to be rolled out in Switzerland, Europe, and Asia in the coming months
• Daiwa Securities Group has taken a 10% stake in, and agreed to a business alliance with Penguin Securities Holdings; Penguin Securities is currently applying for the relevant regulatory approvals to allow it to deal in cryptocurrencies, as well as to provide broker-dealing services in relation to capital markets products, including derivatives contracts where the underlyings include a mix of both traditional capital markets products and digital payment tokens; Daiwa Securities Group will provide Penguin Securities HD with its financial expertise and knowledge in the high-net-worth business, as well as funding support
• Binance to launch JPY spot trading pairs for BNB, BTC, ETH globally on March 12
• Diamond Realty Management (DREAM), which manages real estate funds within the Mitsubishi Corporation Group, launched its first real estate security token (ST) product “DREAM Realty Token — Residence 1 — ”
• Astar Network has deployed its zkEVM Ethereum Layer2 on mainnet; the network leverages Polygon Labs’s AggLayer to achieve interoperability across the Ethereum, Polygon, and Astar ecosystems
• Animoca Brands Japan and KDDI have signed a memorandum of understanding to explore a strategic alliance to accelerate Web3 adoption including collaboration between Mocaverse, the marquee growth network with an interoperable infrastructure layer of Account, Identity, Reputation, and PointFi systems seeded by Animoca Brands, and αU (Alpha U), the metaverse and Web3 service by KDDI
• Sony has filed a patent involving the use of non-fungible tokens as part of in-game mechanics; Sony’s patent describes the usage of a “Super-Fungible Token,” an amalgamation of a set of #gaming assets, allowing the selection of only one of them per time in the gaming implementation

The Last Word: Glass Ceiling

“Japan is not changing” — Nothing gets the crowd fired up more than this statement. That is why I like to use it provocatively, and because it is totally missing the point. The nuanced version would be “Japan is not changing fast enough”.

In the specific context of one discussion last week, it was about “womenomics”. 2024 marks the 25th anniversary of the initial publication of Kathy Matsui’s seminal research report. So I asked a panel, “How do we make sure that in the next 25 years we are going to see real change?”

The answers were somewhere along the lines of female workforce participation rate (higher in Japan now than in the US), and that diversity is not only expressed through gender (well, in Japan that is really the big nut to crack, our Black and Hispanic population is somewhat low).

So yes, there has been change. However, the fact is that in many domains, the world has been progressing at an accelerated pace, and Japan has fallen further behind in relative rankings (e.g., Finance & FinTech, and also digital).

Again yes, there are green shoots. In the Economist’s Glass Ceiling Index, the latest version of which has just been published for International Women’s Day, Japan has actually surpassed Turkey to move from 28th to 27th place.

Someone who has broken the Glass Ceiling is Nikko Asset Management Group President Stefanie Drews, who has been featured in a Financial Times article, “Creating career paths in Japanese finance”.

If you would like to see more of our content, please head over to the Tokyo FinTech YouTube Channel or check out the eXponential Finance Podcast.

We have also created two LinkedIn groups, the “Japan Startup Observer” if your interest in Japan goes beyond FinTech, and the “FinTechs of India” to capture the developments on the subcontinent. We invite you to join both these groups.

Have an awesome week ahead.