Japan FinTech Observer #63

Welcome to the sixty-third edition of the Japan FinTech Observer.

Gavin Wood stopped by Tokyo University on his “Gray Paper Tour” for JAM, the Join-Accumulate Machine. We have not seen a recording of the event yet, but will surely share the link once it becomes available. Not quite the same as Taylor Swift at Tokyo Dome, but a good turnout nonetheless.

Google Cloud held its finance summit, headlined by a key note address from the Parliamentary Vice-Minister for Financial Services Junichi Kanda, a Generative AI panel with Hokkoku Financial, SBI Group, Mizuho, and The Dai-ichi Life Insurance Company, Limited, as well as deeper dives on the HOKKOKU FINANCIAL HOLDINGS and Mizuho transformation journeys. Remember that the lines are fairly drawn between the mega banks and the hyperscalers: Mizuho & Google Cloud, SMFG & Microsoft Azure, and MUFG & Amazon Web Services (AWS).

Here is what we are going to cover this week:

• Venture Capital & Private Markets: MUFG Innovation Partners (MUIP) invested in MNTSQ; Manpuku Holdings has raised a total of 1.2 billion yen; Pale Blue has raised an extra $8.5 million in venture capital; Nihon Agri raised approximately 4.2 billion yen in Series C funding; KKR is considering entering the private credit market; Sunrise Capital, has raised $500 million for its most recent fund
• Insurance: a Self-Regulatory Organization for non-life insurance agents has been proposed; YAMAP, an outdoor business company, will establish “YAMAP Naturance Non-Life Insurance”; Sompo Holdings invests in RIZAP Group
• Banking: SBI Sumishin Net Bank (SSNB) and Asahi Kasei Homes have launched “Hebel NEOBANK”; Sumitomo Mitsui Financial Group and Recruit have signed a basic agreement to start considering collaboration for providing financial services; Seven Bank has established a local corporation in Malaysia; Osaka Prefectural Police have requested to freeze approximately 1,300 accounts related to a money laundering operation
• Payments: Zengin-Net has published critical updates regarding the next-generation Zengin System; Digital Garage has started full-scale operation of “AppPay”, bypassing app stores; Smartpay has added Mitsubishi UFJ Bank, The Bank of Fukuoka, The Juhachi-Shinwa Bank, and The Kumamoto Bank to its service
• Capital Markets: Japan’s Securities and Exchange Surveillance Commission is thinking about recommending administrative punishment against MUFG Bank; Elliott Investment Management is pushing Softbank to launch a US$15 billion buyback; the Financial Services Agency has published the “Action Program for Corporate Governance Reform 2024: Principles into Practice”
• Asset Management: Fukuoka, Osaka, Tokyo, and Sapporo have been chosen as Financial and Asset Management Special Zones, with slightly differentiated emphasis on sub-sectors
• Digital Assets: DMM Bitcoin to raise JPY 55bn in new capital from DMM Group companies; administrative action against FTX Japan has been extended by another three months; West Japan Railway Company (JR West) has announced the planned issuance of retail bonds with digital benefits; SBI Digital Hub has acquired all shares of DeFimans; DeCurret DCP and Visual Voicew will provide the DAO Fan Token Service
• The Last Word: Mt. Gox Redemptions

Venture Capital & Private Markets

• MUFG Innovation Partners (MUIP) invested in MNTSQ through its MUFG Innovation Partners №3 Investment Partnership; other investors in this JPY 1bn round are Japan Post Next Partners and JGC Mirai Investment (operated by Global Brain Corporation); this was augmented through debt financing in form of a corporate bond issue underwritten by Aozora Hybrid №3 Investment managed by Aozora Corporate Investment, and a loan from the Shoko Chukin Bank
• Manpuku Holdings has raised a total of 1.2 billion yen through a third-party allotment of new shares, with Kanpo NEXT Partners, Agribusiness Investment and Incubation Corporation, HIRAC FUND｜Money Forward Venture Partners, Inc., Hibiki Capital, The San-in Godo Bank, and other investors as allottees, in its Series B round; Manpuku provides a food business succession platform
• Pale Blue has raised an extra $8.5 million in venture capital to mass-produce water vapor propulsion systems and upgrade the technology; the funding is on top of the $7.5 million the four-year-old University of Tokyo spin-off raised in October in loans and the first phase of Series B venture financing; Japanese early-stage investors Incubate Fund and Mitsui Sumitomo Insurance Group Venture Capital co-led the first phase of Pale Blue’s Series B funding round that closed in October, but did not participate in the extension; investors that joined in its latest funding round include Astart, Global Brain, ITOCHU Corporation Technology Ventures, Gogin Capital and Chibagin Capital
• Nihon Agri, which is creating a new industrial structure by providing a one-stop service from production to sales of Japanese agricultural products, has raised approximately 4.2 billion yen in Series C funding through third-party allotment of new shares and loans from Norinchukin Bank, Keio Innovation Initiative, Inc., Development Bank of Japan Inc., Towa (SBI Investment) and others to secure funds for the rapid growth and expansion of its business
• KKR is considering entering the private credit market in Japan to provide an alternative to bank loans; in addition, Japan is the destination for about 40% of KKR’s investment in Asia; the firm sees Japanese companies increasingly willing to sell non-core businesses that can do better as individual entities; these so-called carve-outs often provide returns that are higher than other investments
• The pan-Asia investment firm CLSA Capital Partners’ specific private equity strategy for Japan, Sunrise Capital, has raised $500 million for its most recent fund, Sunrise Capital V; within five months, the fund was closed due to oversubscription; according to a company announcement, it obtained backing from current investors, who made up 81% of the total number of commitments

Insurance

• The “Fourth Meeting of the Expert Panel on Structural Issues and Competition in the Non-Life Insurance Industry” was held, and a draft of the expert panel’s report presented; one of the suggestions included in the report is the establishment of an SRO: “from the perspective of further improving the sales quality of insurance solicitors, it is desirable to continue to consider requiring large insurance agencies to establish stricter systems as legal measures and to establish legally-based self-regulatory organizations”
• YAMAP, an outdoor business company with the corporate philosophy of “The joy of connecting with the earth”, has raised a total of 2.04 billion yen (including debt) in a Series D round; with the funds raised this time, YAMAP will establish “YAMAP Naturance Non-Life Insurance”, which will become a group company; Naturance Insurance will provide outdoor insurance, and YAMAP has started selling damage insurance as an agent
• Sompo Holdings invests in RIZAP Group: RIZAP Group will allot 29,069,767 shares of its common stock (4.87% of the total number of issued shares) to SOMPO Holdings through third-party allotment. In addition, RIZAP Corporation, a subsidiary of RIZAP Group, will also allot common stock to SOMPO Holdings through third-party allotment and receive a payment of 20 billion yen; as a result, SOMPO Holdings’ investment ratio in RIZAP will be 23%

Banking

• SBI Sumishin Net Bank (SSNB) and Asahi Kasei Homes have launched a new financial service, “Hebel NEOBANK,” utilizing “NEOBANK®, a full-banking BaaS (Banking as a Service) provided by SBI Sumishin Net Bank, through Asahi Kasei Homes Financial, a subsidiary of Asahi Kasei Homes, which began selling home loans as a bank agent with SBI Sumishin Net Bank as its affiliated bank in 2020
• Sumitomo Mitsui Financial Group and Recruit have signed a basic agreement to start considering collaboration for providing financial services through the business and management support service “Air Business Tools” operated by Recruit; in the future, the partners will start accepting applications for opening SMBC accounts through “Air Pay,” one of the “Air Business Tools” cashless payment services; in addition, Sumitomo Mitsui Card has been conducting an implementation experiment since January 2024 to handle the merchant contract business for the “Invoice Factoring Service” provided by Recruit
• Seven Bank has established a local corporation in Malaysia, which is its fourth international operating base following the U.S., Indonesia, and the Philippines
• Osaka Prefectural Police have requested financial institutions to freeze approximately 1,300 accounts misused by a group conducting a money laundering operation; the group is said to operate by opening bank accounts under the names of shell companies; it is is believed to have managed around 4,000 accounts across roughly 500 of such companies; in other news, entrepreneurs still complain it is hard to open bank accounts for startups in Japan

Global

• Lendbuzz, an AI-based FinTech company that helps consumers obtain better access to credit when purchasing a vehicle, has closed a $100 million credit facility with MUFG; the additional warehouse capacity will fuel Lendbuzz’s continued loan origination growth; MUFG Innovation Partners (MUIP) invested in Lendbuzz in 2021
• SoftBank-backed Brazilian online lender Inter&Co is hoping to replicate its home market success in the United States, where it is targeting visitors from Latin America’s largest country in two of Florida’s biggest cities; Inter has quickly become one of the top fintech players in Brazil’s booming online banking scene, gaining 32 million clients drawn by a wide menu of products such as credit cards, mortgages and investments through its smartphone app

Payments

Migration Plan for the next generation Zengin System

• Zengin-Net has published the minutes of the first meeting of the Working Group on the Advance of the Payment System, held on May 23, 2024, which included critical updates regarding the timeline of various initiatives, which has been impacted by the system outage last year, and related remediation efforts
• Digital Garage has started full-scale operation of “AppPay,” the first online marketplace service in Japan that allows users to purchase digital content for various apps outside of the respective platform’s app store, e.g. Apple App Store or Google Play Store; Japan has recently passed the “Bill for the Act on Promotion of Competition for Specified Smartphone Software” at a plenary session of the House of Representatives, and it is expected to be enacted in the current session of Parliament, which would imply the law is expected to become effective by the end of 2025
• Smartpay has added Mitsubishi UFJ Bank, The Bank of Fukuoka, The Juhachi-Shinwa Bank, and The Kumamoto Bank to its “Smartpay Instant Account Debit (Bank Direct)” BNPL service that allows instant debits from bank accounts, bringing the total number of supported financial institutions to 226

Capital Markets

• Japan’s Securities and Exchange Surveillance Commission is thinking about recommending administrative punishment against MUFG Bank, Mitsubishi UFJ Morgan Stanley Securities, and Morgan Stanley MUFG Securities over their handling of customer information; the securities watchdog believes that customer information was shared between MUFG Bank and the security companies without the consent of the customers
• Elliott Investment Management has built a sizeable stake in SoftBank Group and is pushing the Japanese investment firm to launch a US$15 billion buyback; the US activist investor has amassed a stake worth more than US$2 billion and engaged with SoftBank executives in recent months
• Nomura has updated its outlook for FY24–25 corporate earnings: (I) Sales up 3.9%, operating profits up 13.1%, recurring profits up 15.0%, net profits up 14.8% in FY23, (II) Nomura analysts forecast growth of 3.3% in sales, 9.3% in operating profits, 6.3% in recurring profits and 4.2% in net profits in FY24, (III) Revision Index shows roughly equal mix between upward and downward revisions, and (IV) Dividend payout ratio forecast to rise to 37.1% in FY24
• The Financial Services Agency has published the “Action Program for Corporate Governance Reform 2024: Principles into Practice”; the Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code has published its seventh opinion statement, which makes recommendations regarding putting corporate governance reform “into practice” of corporate governance reform

Asset Management

Four Financial and Asset Management Special Zones have been chosen, with slightly differentiated emphasis on sub-sectors:

• Hokkaido and Sapporo City aim to become an Asian and global financial center, attracting financial resources, talent, and information related to GX, leveraging Hokkaido’s leading renewable energy potential and Sapporo’s appealing blend of city life and natural beauty; through enhanced financial functions, the region aims to become “Japan’s renewable energy supply base,” fostering the development of GX industry supply chains and creating jobs
• Tokyo aims to contribute to the growth of Japan and Asia by serving as a gateway for attracting global capital, talent, technology, and information. To achieve this, Tokyo focuses on three pillars: (I) Advanced Sustainable Finance City, (II) City where Global Startups Flourish, and (III) City with Global Standards for “Business in English”
• Osaka Prefecture and Osaka City aim to create a “future society” where new innovations are constantly generated; this will be achieved by building on the legacy of the “2025 Osaka-Kansai Expo” and fostering an environment where startups and universities can confidently pursue challenges; through global standard regulatory reforms and attracting foreign investment, Osaka will enhance its financial functions
• Leveraging Fukuoka’s characteristics, including its position as “Asia’s Gateway,” the region aims to attract international financial institutions, related companies, and highly skilled financial professionals; by embracing the dynamism of Asia, Fukuoka will provide growth capital to startups and emerging industries in the region, further strengthening its ecosystem

Digital Assets

• DMM Bitcoin to raise JPY 55bn in new capital from DMM Group companies after the cryptocurrency had been compromised
• The administrative action against FTX Japan, which would have expired on June 9, has been extended by another three months to ensure all assets are held within Japan
• West Japan Railway Company (JR West) has announced the planned issuance of retail bonds with digital benefits (nickname: “More WEST! WESTER Bonds”) on June 19, 2024; this marks the first time a railway company has issued such bonds, and will be facilitated through Mizuho Financial Group, based on the Securitize platform
• SBI Digital Hub, a leading provider of DX and Web3 consulting services, has acquired all shares of DeFimans, a Web3 consulting firm, through a share transfer agreement with DeFimans’ existing shareholders; as a result, DeFimans has become a wholly owned subsidiary of SBI Digital Hub
• DeCurret DCP, which operates a digital currency business through the provision of Amic Sign, will begin collaborating with Visual Voice, a storytelling company that creates empathetic communication through the power of video, to provide the DAO Fan Token Service, a community for creators within LIFE LOG BOX (LLB), a data asset management service operated by Visual Voice

The Last Word: Mt. Gox Redemptions

Kaiko Research analyzes possible Mt. Gox redemptions:

Mt. Gox will repay creditors in BTC, BCH, and fiat currency. The creditors’ decision to sell their holdings is uncertain and will likely depend on the market’s ability to absorb large orders.

Fortunately, the market depth for BTC and BCH has improved by roughly 30%, reaching pre-FTX collapse levels, which may help mitigate potential price fluctuations if the sell-off occurs soon. However, looking at the dollar amount of available liquidity, the divergence between the two assets is striking.

Bitcoin Cash has significantly lower liquidity than Bitcoin, with a daily average depth of only $9 million or 3.5% of Bitcoin’s depth. Despite benefiting from the recent bull run and the launch of EDX, a Fidelity, Charles Schwab, and Citadel Securities-backed exchange last year, BCH underperformed in Kaiko’s latest liquidity ranking.

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. Registrations for the Tokyo FinTech Meetup have moved to Luma.

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.