Japan FinTech Observer #65

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

Just as we are writing last week’s report, the Financial Services Agency has followed the recommendation of the Securities and Exchange Surveillance Commission and issued administrative actions against Mitsubishi UFJ Morgan Stanley Securities, Morgan Stanley MUFG Securities and MUFG Bank for violations of “firewall” regulations between banking and securities entities, and the associate mis-appropriation of confidential client information without consent. The FSA has even managed to put out the notice in Japanese and English simultaneously (progress is being made!).

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Fujitsu starts impact investing, takes stake in Gojo & Company; Soul Ventures has established a Japan office; Sumitomo Mitsui Financial Group invests in Paper.id; DG Daiwa Ventures has made investments in three AI startups: Magic Hour, Pump.co, Yoneda Labs; Saison Technology announced investing $10 million in DNX Ventures U.S. Fund IV; Keystone Partners is readying a 100 billion yen fund to support the reduction of cross-shareholdings
• Banking: Mitsubishi UFJ Trust Bank, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Mizuho Financial Group, and others have jointly established the DVCC Personal Verification Subcommittee; the Digital Agency has released a Digital Authentication App; Norinchukin Bank will sell a substantial amount of its foreign bond holdings, realizing losses that will put the FY2024 towards a deficit of 1.5 trillion yen; Citi announced the launch of its City Commercial Bank (CCB) business in Japan; Mizuho Financial Group and Lombard Odier Trust (Japan) have signed a new MOU covering sustainability; SMBC Consumer Finance will promote loans on a dating website; Credit Saison India shows strong growth, with half the loan book sourced through FinTechs
• Payments: the “Kyash Corporate Remittance Service” has added transfers directly to bank accounts in addition to wallets; Infcurion’s “Payment Trends 2024 First Half Survey” paints a vivid picture of Japan’s cashless progress
• Capital Markets & Asset Management: a second stage of TOPIX revisions will commence, more liquidity-focused, and also including the Standard Market and Growth Market; the Osaka Dejima Exchange has received approval for a Rice Index Market; Purple Trading gets recognition for its Fintokei prop trading success in Japan; Betashares is looking for alliances or acquisitions in Japan after Temasek took a stake
• Digital Assets: bitFlyer Group to acquire FTX Japan and develop crypto custody services under a new brand; Coincheck set new records for an IEO with the Brillant Crypto Token; SBINFT enabled the use of the αU wallet, a cryptocurrency wallet provided by KDDI Corporation; Nomura’s Laser Digital is now permissioned to provide broker-dealer services and asset/fund management services in and from ADGM, in relation to both virtual assets and traditional assets’ Konami Digital Entertainment will move its in-house developed NFT provision solution “Resella” to “Avalanche,” developed by Ava Labs
• The Last Word: Providing services to the elderly

Venture Capital & Private Markets

• The good people at Yoii Inc. have updated their list of Corporate Venture Capital firms active domestically, now comprising more than 200 entries
• According to reporting by the Nikkei, Keystone Partners, part of SBI Holdings, is readying a 100 billion yen fund to support the reduction of cross-shareholdings; the company did not provide any comment, and simply listed a link to the Nikkei article on its website
• Fujitsu Limited announced that it has expanded the investment scope of the Corporate Venture Capital (CVC) fund managed by Fujitsu Ventures to begin impact investing, in which Fujitsu will invest in companies that are taking on the challenge of solving social issues; in May 2024, for its first impact investment, Fujitsu invested into Gojo & Company, which provides financial services, such as microfinance, to low-income households in developing countries
• Soul Ventures, a global venture capital firm, announced a significant milestone with the establishment of Soul Ventures Japan, marking the firm’s expansion into the Japanese market; founded in 2021, Soul Ventures has established itself as a visionary in the venturecapital landscape, focusing on early to growth-stage investments in sectors poised for transformative change
• Sumitomo Mitsui Financial Group invests in Paper.id: Paper.id has completed its Series B fundraising, led by Square Peg, with participation from SMBC Asia Rising Fund and existing investor, Argor Capital Management; founded in 2017, Paper.id focuses on helping Indonesian businesses manage their accounts receivable and accounts payable through its invoicing and payment platform
• DG Daiwa Ventures has made investments in three AI startups (Magic Hour, Pump.co, Yoneda Labs) that were selected for Y Combinator’s YC W24 Demo Day held in April this year; this brings the total number of DGDV’s investments in YC companies to 28
• Saison Technology announced investing $10 million in DNX Ventures U.S. Fund IV; founded in 2011, DNX Ventures (DNX) is a venture capital firm investing in B2B startups from seed to late stage, primarily in North America and Japan; it has over 190 portfolio companies with 23 exits and over $630 million under management
• A relatively quiet first half of the year for private equity-backed dealmaking in Japan has not dimmed the enthusiasm of investors who see a turning point for the country’s private equity market; the announced value of private equity-backed transactions in Japan through June 4 came to just $2.32 billion, on track to fall well short of the $9.92 billion full-year total recorded in 2023

Banking

DVCC Personal Verification Subcommittee

• Mitsubishi UFJ Trust Bank, Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Mizuho Financial Group, Fukuoka Financial Group, Yokohama Bank, and Shizuoka Bank have jointly established the Personal Verification Subcommittee within the DID/VC Co-Creation Consortium (DVCC), hosted by Mitsubishi UFJ Trust Bank; the Subcommittee will begin verification of the effectiveness and feasibility of new personal verification methods using Decentralized Identifiers (DID) and Verifiable Credentials (VC)
• In other news, Japan’s Digital Agency has launched its developer portal, providing as the first release the “Digital Authentication App” to make authentication and signing using your “My Number” card safe and easy
• Norinchukin Bank will sell a substantial amount of its foreign bond holdings, realizing losses that will put the FY2024 towards a deficit of 1.5 trillion yen; in “Hope is not a Strategy”, we published our take on the situation
• Citi announced the launch of its City Commercial Bank (CCB) business in Japan, part of Citi’s strategy to establish a presence in key growth markets across each cluster; CCB will focus on supporting Japanese mid-market companies at all stages of their growth journey by leveraging Citi’s extensive global network and providing products and solutions tailored to their strategic needs
• Mizuho Financial Group and Lombard Odier Trust (Japan), the Japanese entity of Swiss group Lombard Odier, have signed a new memorandum of understanding (MOU) covering sustainability, expanding its areas of cooperation beyond the existing Strategic Alliance Agreement for private banking.
• SMBC Consumer Finance (SMBCCF), which provides loan products under the brand name “Promise,” and Linkbal, which operates the matching app “CoupLink,” have entered into business alliance to begin loan sales starting July 1, 2024; for this purpose, SMBCCF will utilize AI provided by MiDATA, an AI service development company, to automatically improve the placement of in-site advertisements
• Credit Saison India’s loan book has reached ₹12,000 crore; with over half of our loans sourced through partnerships with 25 fintech companies like CRED, KreditBee, airtel and Groww, Credit Saison is set up for significant growth, planning to expand its network to 75 branches by year-end

Payments

• Kyash announced the general availability of its “Kyash Corporate Remittance Service” after a pilot phase that started in January 2024; initially launched in December 2021, the Corporate Remittance Service enabled businesses to send remuneration and sales proceeds to freelancers and gig workers via the Kyash app, i.e. to a Kyash wallet; the service has now added the ability to transfer funds directly to bank accounts
• Infcurion’s “Payment Trends 2024 First Half Survey” paints a vivid picture of Japan’s rapidly transforming payment landscape. Cashless transactions are no longer a trend, but a firmly established reality, driven by the widespread adoption of QR code payments and the burgeoning use of contactless technology

Capital Markets & Asset Management

• The TOPIX revisions currently in progress, using the opportunity provided by TSE’s market restructuring in April 2022 to enhance TOPIX’s functionality as an investable index, are set to be completed in January 2025; following this, a second stage of revisions will commence to further enhance TOPIX‘s broad coverage and its functionality as an investable index; periodic reviews will be conducted with a greater emphasis on liquidity and include the Standard Market and Growth Market as well
• The Ministry of Agriculture, Forestry and Fisheries and the Ministry of Economy, Trade and Industry have approved the establishment of a Rice Index Market at the Osaka Dejima Exchange, with a launch likely in August
• Purple Trading’s prop trading brand Fintokei gets recognition for its success in Japan as it expands beyond Japan and its Central European roots
• J.P. Morgan Wealth Management confidently states: “Japanese stocks: This time is different”
• Allinfra Climate has been chosen to underpin an initiative launched by Nomura Research Institute to promote the creation and distribution of forest-derived J-Credits — carbon credits that are certified by the Japanese government to represent the amount of greenhouse gas emissions that have been reduced or removed by sinks in Japan; NRI aims to reduce CO2 emissions and resolve regional issues surrounding forests, starting with two forest areas in Tsuruoka City, Yamagata Prefecture
• Betashares, a rising Australian funds and pensions manager, is planning a potential takeover or alliance in Japan after Singapore’s state-owned fund Temasek agreed to buy a stake in its business for up to A$300mn ($198mn)

Digital Assets

• bitFlyer Group has entered into an agreement to acquire 100% of the share capital of FTX Japan K.K; after obtaining approval from the U.S. Bankruptcy Court, FTX Japan will become a wholly owned subsidiary of bitFlyer Holdings, and is expected to remain a separately managed entity that will develop crypto custody services
• Coincheck reported that the “Coincheck Initial Exchange Offering (IEO)” service for the Brilliant Crypto Token (BRIL) received applications amounting to 33.3 billion yen from 79,400 applicants, setting new records for the highest JPY value and number of applicants of any IEO conducted on Coincheck IEO to date
• SBINFT enabled the use of the αU wallet, a cryptocurrency wallet provided by KDDI Corporation, on the NFT marketplace “SBINFT Market” and marketing platform “SBINFT Mits”; αU wallet is characterized by its backup and filtering functions that allow even beginners to handle NFTs and crypto assets, and is used by many Web3 beginners; by supporting the αU wallet on the SBINFT platforms, the company expect to attract users who might have been hesitant to transact until now
• The Financial Services Regulatory Authority of AbuDhabi has approved the issuance of a Financial Services Permission, completing Laser Digital’s licencing process with Abu Dhabi Global Market (ADGM); the license grants Nomura’s Laser Digital the permission to provide broker-dealer services and asset/fund management services in and from ADGM, in relation to both virtual assets and traditional assets
• Konami Digital Entertainment announced that it will open up and make available the functions of its in-house developed NFT provision solution “Resella” to companies and organizations considering web3 services; the blockchain adopted will be “Avalanche,” developed by Ava Labs

The Last Word: Providing services to the elderly

Since we highlighted last week that 63% of household financial assets are owned by Japanese 60 years and older (increasing to 69% over the next 20 years), it is important to also draw attention to the just-released new guidelines for providing services to the elderly.

In a pan-ministerial effort, the Cabinet Secretariat (Coordination Team for Guarantorship and Other Support for the Elderly), the Office for Countermeasures for Loneliness and Isolation (Cabinet Office), the Financial Services Agency, the Consumer Affairs Agency, the Ministry of Internal Affairs and Communications, the Ministry of Justice, the Ministry of Health, Labour and Welfare, the Ministry of Economy, Trade and Industry, and the Ministry of Land, Infrastructure, Transport and Tourism have joined forces to publish “Guidelines for Lifetime Support Service Providers for the Elderly”.

These guidelines mainly target service providers that meet the following three requirements:

1. The service provider provides “guarantorship and other services” and “post-death affairs services.”
2. The service provider provides services based on a contract concluded with the user (contractor).
3. The service provider provides services continuously as a business.

These guidelines target lifetime support service providers for the elderly that are not subject to regulations under various laws and regulations. However, businesses that are already subject to other laws and regulations, such as lawyers, judicial scriveners, and administrative scriveners, are not subject to these guidelines.

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.