Japan FinTech Observer #66

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

A lovely start to the second half of the year. Sony went public with its 2023 acquisition of Amber Group’s (and previously DeCurret’s) cryptocurrency exchange WhaleFin, which will now be rebranded as S.Blox. After bitflyer’s announcement to take over FTX Japan last week, the second exchange in as many weeks changes hands.

Add to that a huge vote of confidence for the first generation of Japanese B2B SaaS companies, with KKR and Teachers’ Venture Growth leading a US$140 Million Series E Round in Japanese cloud-native human resources software platform SmartHR, which was founded in 2013.

We will be at IVS Kyoto from July 4 to 7. If you would like to meet in person, please ping me.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: MUFG invests in Ascend Money, a provider of digital financial services in Thailand, and also in LanzaJet, a leading sustainable fuels technology company and sustainable fuels producer; Mizuho Capital, NTT Docomo Ventures, and others invest in SOXAI, the developer of Japan’s leading health management smart ring; MPower Partners, Square Enix, and others invest in Mantra, a company conducting research and development into AI translation technology specialized for manga; Z Venture Capital invests in k-ID, a first-of-its-kind global compliance engine that simplifies online safety and privacy management for game developers
• Insurance: Mizuho Bank will begin offering Pair Loan Group Insurance provided by Dai-ichi Life
• Banking: Minna Bank and Revolut Japan tie the knot on their partnership that was announced about a year ago; S&P Global Ratings has revised its outlook on Japan’s Norinchukin Bank to “negative” from “stable”, on the risk of delays in the recovery of earnings; pioneering cloud factoring company OLTA has won the first credit union as a partner; Kanmu launched a new Revenue-Based-Financing (RBF) service; Sumitomo Mitsui Financial Group’s Olive has won the Grand Prize in the Customer Experience (CX) Category at the Japan DX Awards 2024
• Payments: the Bank of Japan has published the minutes of the seventh “Liaison Meeting on Central Bank Digital Currency (CBDC)”; Hitachi Payment Services has received the Reserve Bank of India’s final authorization to operate as an Online Payment Aggregator
• Capital Markets & Asset Management: Citadel to buy power firm Energy Grid in first Japanese acquisition; the Japan Securities Clearing Corporation has joined the Fintech Open Source Foundation (FINOS), the financial services umbrella of the Linux Foundation; more investors in Japan are suing MUFG’s brokerage unit over investments in Credit Suisse’s riskiest bonds; Tikehau Capital and Nikko Asset Management announced their strategic partnerhip; Nomura’s chief executive is on the hunt for global acquisitions to expand its wealth management business
• Digital Assets: Sony gets ready to launch a crypto exchange in Japan; Mt Gox will start repayments in July; The Aptos Foundation is teaming up with Alibaba Cloud to strengthen Japan’s Web3 ecosystem; Oasys has announced a partnership with the South Korean gaming community platform Vortex Gaming
• The Last Word: Household Financial Assets

“Tokyo Financial Award” by the Tokyo Metropolitan Government

The Tokyo Metropolitan Government, with the aim of making Tokyo an “Innovation and Financial Hub in Asia for Realizing a Sustainable Society,” is making effective use of the newly established “Special Zones for Financial and Asset Management Businesses” to promote initiatives that will position Tokyo as the leading city for sustainable finance, and as the city where global startups are born.

The Tokyo Financial Award 2024 recognizes initiatives that contribute to the creation of innovation in the financial sector, and that utilize the power of finance to achieve a sustainable society. The Tokyo Financial Award 2024 comprises the two categories of “Financial Innovation” and “Sustainability.” Applications are accepted for a wide range of initiatives in Japan and overseas. The application deadline for the former is Friday, August 30, 2024, and Monday, September 30, 2024, for the latter.

Somewhat related, the law firm of Anderson Mori & Tomotsune has published primer on the Financial Market Entry Office.

Venture Capital & Private Markets

• Mitsubishi UFJ Financial Group and its consolidated subsidiary, MUFG Bank, as a lead investor for this round, together with Finnoventure Private Equity Trust I managed by Krungsri Finnovate, a subsidiary of the Bank of Ayudhya (“Krungsri”), have entered into an investment agreement for USD 195 million in Ascend Money, a provider of digital financial services in Thailand
• MUFG invests in LanzaJet, a leading sustainable fuels technology company and sustainable fuels producer; the investment enables LanzaJet to continue building its capability and capacity to deploy its proprietary ethanol to sustainable aviation fuel (SAF) process technology
• SOXAI, the developer of the world’s smallest health management smart ring, the first of its kind in Japan, has raised a total of 880 million yen in Series A funding from investors including Mizuho Capital, NTT Docomo Ventures, and others
• Mantra, a company conducting research and development into AI translation technology specialized for manga, has raised funds totaling approximately 780 million yen through a third-party allotment of new shares, with underwriters including MPower Partners, Square Enix, and others
• Z Venture Capital invests in k-ID, a first-of-its-kind global compliance engine that simplifies online safety and privacy management for game developers, parents, kids, and teens, as part of k-ID’s $45 million Series A funding round
• Sony Ventures to go global for its next fund: Sony’s venture arm plans to look to Europe and beyond for backers when it launches its next fund, as it expands to Africa and seeks content as well as tech
• The Luxembourg Private Equity Association (LPEA) hosted a seminar in Tokyo; we have captured the key takeaways from the presentations for you, including “Parallel Fund Structures” that straddle the Cayman Islands and Luxembourg

Insurance

• Mizuho Bank will begin offering Pair Loan Group Insurance provided by Dai-ichi Life from July 1, 2024; this will be the first home loan offering among major banks that allows enrollment in joint group credit life insurance for pair loans, covering the total remaining debt of both parties if something happens to either spouse or partner using a pair loan when purchasing a home

Banking

• One year after the basic agreement on BaaS business was signed between Minna Bank and Revolut Japan, the partners are planning to start service collaboration using banking APIs; this new partnership involves four companies, adding Revolut with global expertise in digital banking and FFG, which is engaged in advanced financial DX in Japan, and aims to explore new value co-creation by further connecting the diverse financial products and functions of both groups
• S&P Global Ratings has revised its outlook on Japan’s Norinchukin Bank to “negative” from “stable”, on the risk of delays in the recovery of earnings; S&P meanwhile affirmed “A” long-term and “A-1” short-term credit ratings on Norinchukin; Norinchukin, the Japanese state-backed agricultural bank, earlier this month said it was planning to sell around 10 trillion yen ($62.16 billion) of U.S. and European government bonds to stem losses from bets that went awry when overseas interest rates stayed higher for longer than expected (see also our “Hope is not a Strategy”)
• OLTA, which provides Japan’s first online factoring service “OLTA Cloud Factoring,” has begun offering the cloud factoring service “Nagano Kenshin Cloud Factoring powered by OLTA” in partnership with Nagano Ken Shinyo Kumiai; this is the first partnership with a credit union for cloud factoring services; with the partnership with Nagano Ken Shinyo Kumiai, the number of regional financial institutions OLTA has OEM partnerships with for cloud factoring services has expanded to 38
• Kanmu, provider of “Bundle Card,” a Visa prepaid card that anyone can instantly issue from an app, announced the launch of a new service “Quick Funding” utilizing Revenue-Based-Financing (RBF), a third funding method that is neither equity nor debt
• Sumitomo Mitsui Financial Group, Sumitomo Mitsui Banking Corporation, and Sumitomo Mitsui Card Company announced that “Olive,” a comprehensive financial service for individual customers launched in March 2023, has won the Grand Prize in the Customer Experience (CX) Category at the Japan DX Awards 2024

Payments

• The Bank of Japan has published the minutes of the seventh “Liaison Meeting on Central Bank Digital Currency (CBDC)” in Japanese, which was held on May 29; please note that our translation is for informational purposes only and may not be a perfect representation of the original Japanese text
• Hitachi Payment Services has received the Reserve Bank of India’s final authorization to operate as an Online Payment Aggregator under the Payments and Settlement Systems Act, allowing Hitachi to expand its digital services, offering comprehensive payment solutions such as UPI, Netbanking, and BNPL

Capital Markets & Asset Management

• There has never been a more popular time to be an activist investor in Japan; international hedge funds like Elliott Investment Management and home-grown investors such as Strategic Capital have turned the country into the world’s second-largest market for activists, outstripped only by the US
• Citadel to buy power firm Energy Grid in first Japanese acquisition: Citadel will buy Japanese power firm Energy Grid in its first acquisition in Japan and the first major U.S. investment in Japan’s wholesale energy market in recent years, billionaire investor Kenneth Griffin’s hedge fund said in a statement
• The Japan Securities Clearing Corporation has joined the Fintech Open Source Foundation (FINOS), the financial services umbrella of the Linux Foundation, as Gold member; JSCC is a clearing house (CCP) within the Japan Exchange Group, providing clearing services for Equities, Japanese Government Bonds, Listed Derivatives, and OTC Derivatives
• More investors in Japan are suing MUFG’s brokerage unit more than a year after Credit Suisse’s riskiest bonds that were sold to its clients turned worthless; a lawsuit representing 14 plaintiffs was submitted to the Tokyo District Court, seeking to recover losses from so-called Additional Tier 1 notes that they bought from Mitsubishi UFJ Morgan Stanley Securities; they are demanding a combined 1.37 billion yen ($8.5 million) in compensation
• Tikehau Capital, the global alternative asset management group, and Nikko Asset Management, one of Asia’s largest asset managers, announced the signing and launch of their strategic partnership, encompassing three key components designed to enhance both groups’ global investment capabilities and presence through a distribution agreement, a joint venture, and Nikko Asset Management taking an equity stake in Tikehau Capital
• Nomura’s chief executive is on the hunt for global acquisitions to expand the wealth management business of Japan’s biggest brokerage and investment bank; Kentaro Okuda said in an interview with the Financial Times that the bank was making a strategic shift towards wealth management and adopting a consultancy “mindset”; as part of the push into private equity and private credit markets, Okuda wants Nomura to expand its global asset management capacity in preparation for a generational shift in Japanese investment habits
• A report commissioned by the Financial Services Agency presents the findings from the Study of the Use of the Network for Greening the Financial Systems Scenario, which the Central Research Institute of Electric Power Industry has conducted

Digital Assets

• Sony gets ready to launch crypto exchange in Japan with acquired Amber Group platform; Japan’s multi-industry conglomerate Sony is getting ready to launch a cryptocurrency exchange subsidiary by revamping local trading platform WhaleFin which it acquired last year; WhaleFin has been renamed to S.BLOX Co., which plans to collaborate with Sony Group’s other businesses to generate additional value for its crypto trading services
• Nomura and Laser Digital have published a survey on digital asset investment trends for institutional investors in the Japan market
• Kaiko and Presto have teamed up to publish the “State of the Japanese Crypto Market”
• Mt Gox will start repayments in July: “The Rehabilitation Trustee will commence the repayments in Bitcoin and BitcoinCash in due course to the cryptocurrency exchanges with which the Rehabilitation Trustee has completed the exchange and confirmation of the required information for implementing the repayments”
• The Aptos Foundation is teaming up with Alibaba Cloud to strengthen Japan’s Web3 ecosystem and improve regional accessibility in APAC; this collaboration launched Alcove, Asia’s first co-branded Move developer community, to enhance accessibility and foster innovation across the region
• Oasys has announced a partnership with the South Korean gaming community platform Vortex Gaming; the partnership builds upon Oasys’ existing success in the Korean gaming market as the preeminent gaming chain within the region, and follows the launch of XPLA Verse, an L2 on Oasys developed with participation from South Korea’s Com2uS Group
• The Cabinet Office of the Government of Japan has made available an English translation of the “Trusted Web” whitepaper, which was initially published in Japanese in November 2023; the Trusted Web is an initiative to build a new trust framework that provides mechanisms without excessively relying on specific services, for enabling users (individuals and organizations) to keep control of the data related to themselves and to verify the exchanged data and the parties with whom the data is exchanged
• As cryptocurrency ETFs, and especially the launch of Bitcoin ETFs in the US, has been celebrated as “crypto going mainstream”, an analysis by the Korea Institute of the Finance sounds a cautious note

The Last Word: Household Financial Assets

Continuing our theme from the previous two weeks, when we first highlighted that 63% of household financial assets are owned by Japanese 60 years and older (increasing to 69% over the next 20 years), and then drew attention to the just-released new guidelines for providing services to the elderly, the flow of funds statistics released by Bank of Japan on June 27 highlights that households’ financial assets at the end of March increased 7.1% from the same period last year to 2,199 trillion yen.

Risky assets other than deposits and savings boosted the financial outstanding amount of assets, with stocks and other securities up 33.7% YOY to 313 trillion yen and investment trusts up 31.5% to 119 trillion yen. Both reached record highs.

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.