Japan FinTech Observer #68
Welcome to the sixty-eighth edition of the Japan FinTech Observer.
It was a short break after IVS Kyoto, with Xangle and WebX hosting “Adoption 2024” in Tokyo — we have brought back some insights on how LVMH and Suntory are approaching Web3.
In the last word, we have some comments on Japan’s worker shortage (again). In an admittedly not very comprehensive analysis, we turn the tables and ask “what will Japan do with all its excess workers?”
Otherwise, here is what we are going to cover this week:
- Venture Capital & Private Markets: Dentsu Ventures Fund II has made an investment in Skyflow, a pioneering data company; Vigo Retail, a social commerce and hyper-local delivery powering FMCG B2B across Vietnam, has raised an additional USD 1.5 million from Norinchukin Bank
- Banking: the FATF conducted a Horizontal Review of FATF members’ levels of compliance for gatekeepers (and Japan does not come out too great); Sumitomo Mitsui Financial Group expands its “Olive” retail financial services platform into non-financial offerings for the first time, adding a travel portal; India’s YES BANK’s $5 billion stake sale has drawn preliminary interest from Japan
- Payments: Visa will roll out the Visa Installment Credential (VIC), a dedicated credential for Buy Now Pay Later (BNPL) products, in Japan; Credit Saison has launched “SAISON JP Life Assist,” a portal site to support foreign nationals living in Japan; Digital Wallet Corporation has launched “Smiles Connect” as an MVNO on the NTT Docomo and Softbank networks; SoftBank and NEC have entered into a strategic alliance focused on biometric authentication; Japan’s push for a cashless government
- Capital Markets & ESG: Tokyo-based Soramitsu will build the Pacific island nation of Palau’s gateway to the bond market; the Global Steering Group for Impact Investment has released its annual report on the current status and challenges of impact investing in Japan; Sustainable Lab conducted joint research with the Asian Development Bank
- Asset Management: the Government Pension Investment Fund’s FY2023 return’s; the Japan Hedge Fund Industry 2024 Half-Time Report; some new senior appointments
- Digital Assets: Phillip Securities’ Japanese subsidiary will tokenize silent partnership interests in Sony’s upcoming film “Hero’s Island”; SBI Digital Markets accelerates its Korea growth strategy; gaming blockchain Oasys has entered into an exclusive partnership with Edia Corporation for retro games; Kodansha’s “Attack on Titan”, the renowned Japanese anime, is coming to The Sandbox
- The Last Word: The “Digital Cliff” that wasn’t, and other projections
Adoption 2024
“Adoption 2024”, a conference co-hosted by Xangle.io and WebX, was held in Tokyo earlier in the week, and in Seoul during the second half. We picked out two sessions that illustrated the state of Web3 in two different businesses, with LVMH in the luxury segment, and Suntory in consumer goods.
Sascha Rowold, LVMH’s interim CMO/CDO, provided a critical yet constructive analysis of the current landscape, believing that Web3 can redefine luxury, but it needs a long-term vision.
Highball Charlie (Atsushi Takeuchi), also known as the “Father of Highball” and the inventor of the Suntory highball mug, was joined by Terry Tomonaga, Founder of 8ships. They jointly created “Sakazuki”, a Web3 project by Suntory focused on building a community of like-minded individuals who appreciate the intricacies of craftsmanship and the stories behind it through unique experiences.
Venture Capital & Private Markets
- Dentsu Ventures Fund II, Dentsu Group’s corporate venture capital fund, has made an investment in Skyflow, a pioneering company that offers data privacy vaults built to radically simplify how companies isolate, protect, and govern their customers’ most sensitive data; Skyflow has raised over $30M in its Series B extension round, led by Khosla Ventures with Dentsu Ventures participating as the first Japanese fund to invest
- According to some reports, Vigo Retail, a social commerce and hyper-local delivery powering FMCG B2B across Vietnam, has raised an additional USD 1.5 million from Norinchukin Bank (fund operated by Global Brain Corporation) and Pavilion Capital Group, bringing the total raised for the latest round to nearly USD 11 million
Banking
- To drive compliance with the Financial Action Task Force (FATF) Standards and develop an up-to-date global assessment of the FATF membership’s compliance with requirements applied to gatekeepers, the FATF conducted a Horizontal Review of FATF members’ levels of compliance for gatekeepers (e.g., lawyers, accountants, trust and company service providers, and real estate agents); in this review, Japan comes in just above the average, and significantly behind Singapore, Malaysia, and Hong Kong among leading Asian centers
- To expand its “Olive” retail financial services platform into non-financial offerings for the first time, Sumitomo Mitsui Financial Group has partnered with HTS (Hopper Technology Solutions) to create and power a travel loyalty portal for SMCC, enabling its cardholders to easily book flights, accommodations, and car rentals, while saving money
- India’s YES BANK’s $5 billion stake sale has drawn preliminary interest from Japan, including MUFG and Sumitomo Mitsui Financial Group, although it remains unclear how strong their appetite for a deal is and whether they will proceed
- The fight for talent: Yamaguchi Financial Group, a regional lender headquartered on the western tip of Japan’s biggest island, is considering paying new hires with securities market expertise around the same compensation as staff at the nation’s largest banks
Payments
- Visa will roll out the Visa Installment Credential (VIC), a dedicated credential for Buy Now Pay Later (BNPL) products, in Japan; VIC is a new product developed by Visa for card issuers to enable more flexible installment/deferred payment at Visa affiliated stores around the world; three companies, namely Episode Six, Orient Corporation, and LifeCard, have joined the “VIC in Box” program as partners
- Credit Saison has launched “SAISON JP Life Assist,” a portal site to support foreign nationals living in Japan, including foreign students and workers; in December 2023, the company began offering the “Saison Rent Guarantee Sales Plan for Foreign Nationals”; Credit Saison now launched the portal site to support the foundations for foreign nationals’ everyday lives in Japan
- Digital Wallet Corporation, which operates one of Japan’s most popular remittance services, Smiles, and which acquired Seven-Eleven Group Japan’s international remittance service earlier in the year, has launched “Smiles Connect” as an MVNO on the NTT Docomo and Softbank networks, thereby expanding its “economic zone” and establishing themselves as the first FinTech to add telco services
- SoftBank and NEC have entered into a strategic alliance focused on the field of biometric authentication to accelerate digital transformation (DX) for enterprises and local governments; previously, NEC has collaborated with Mastercard to advance in-store biometric payments, and most recently was part of the consortium that has launched the operating platform for “Myakupe!”, Expo 2025 Osaka, Kansai’s own e-money, and the “Myaku Myaku Reward Program”
- Japan’s push for a cashless government: the “Government Common Payment Platform,” a centralized system designed to facilitate cashless payments for administrative procedures across all levels of government, was launched in April 2023 with support for two-dimensional code payments (PayPay, d Pay, au PAY); at the beginning of FY2024, 22 municipalities have been using the payment platform; at the end of April 2024, credit cards (VISA, Mastercard, JCB, American Express, Diners Club) were added
Capital Markets & ESG
- Tokyo-based Soramitsu, which helped create Cambodia’s digital currency, will build the Pacific island nation of Palau’s gateway to the bond market, according to the Nikkei; the platform will allow the government to issue bonds to individual investors and manage principal and interest payments; the Palau project has been chosen by Japan’s Ministry of Economy, Trade and Industry as an aid recipient; the Japanese foreign and finance ministries will provide advice on strategy and project management
- The Global Steering Group for Impact Investment National Advisory Committee has released an English version of its annual report on the current status and challenges of impact investing in Japan; this report, published annually since 2016 by the GSG Domestic Advisory Committee, presents impact investments in Japan based on a questionnaire survey, as well as case studies of institutions involved in impact investing and trends in impact investing in Japan obtained from the questionnaire
- Sustainable Lab conducted joint research with the Asian Development Bank (ADB) titled “Environmental Materiality in eXtensible Business Reporting Language Disclosures: Evidence from Japan”, published in the ADB’s Asian Bond Monitor for June 2024
Asset Management
- The Government Pension Investment Fund achieved a return of 22.67% during FY2023 (ending March 2024)
- Japan Hedge Fund Industry 2024 Half-Time Report: Japanese markets have been off to a strong start in 2024; after many long years of suffering from a lack of investor interest, Japan has finally awakened and seems to be every investor’s new “best idea”; many global investors seem to be busy dusting off their prior Japan playbooks, trying to frantically understand how the rules might have changed, and who may be best suited to guide them through Japan’s new dawn
- On that last note, Stonepeak has appointed former Bank of America Securities Japan Vice-Chairman Yuichi Jimbo as chairman for Japan, and Ares Management Corporation announced that Masahiko Oshima has been named Partner and Chairman of Japan for Ares Asia
Digital Assets
- Phillip Securities’ Japanese subsidiary will tokenize silent partnership interests in Sony’s upcoming film “Hero’s Island”, which is scheduled to be released nationwide in 2025, based on issuance technology provided by Securitize Japan
- SBI Digital Markets accelerates Korea growth strategy with appointment of Jai Yung Byun; Byun has been advising on business development and regulatory strategies in South Korea since 2023; his expertise has been instrumental in navigating the intricate landscape of the Korean market, fostering relationships with financial institutions across both public and private sectors; prior to joining SBI Digital Markets, Byun served as Country Manager, South Korea for Northern Trust
- Laser Digital, Nomura’s digital asset subsidiary, has integrated 4OTC’s 1API service for ultra-low latency connectivity to multiple exchanges globally
- Gaming blockchain Oasys has entered into an exclusive partnership with Edia Corporation, a holder of 139 retro game intellectual property; Oasys will onboard a new user base to Web3 gaming by becoming the exclusive distributor for all 139 retro game IP titles Edia owns in the Web3 and global markets
- “Attack on Titan”, the renowned Japanese anime, is making its way into the crypto gaming realm through a partnership with The Sandbox; this collaboration aims to transform the post-apocalyptic universe of “Attack on Titan” into an interactive virtual landscape within The Sandbox’s Ethereum-based metaverse; the IP owner, Kodansha, gave permission to the Sandbox and the businesses Minto and Copro; together, they will create NFTs and grow the themed area
- Nagashima Ohno & Tsunematsu have published a newsletter on “Recent Legal Trends regarding Metaverse and XR in Japan”
The Last Word: The “Digital Cliff” that wasn’t, and other projections
In 2025, Japan was supposed to fall off a “Digital Cliff”. In September 2018, Japan’s Ministry of Economy, Trade and Industry (METI) published a report on digital transformation, commonly referred to as the “DX Report”. Its key message was that Japan may suffer an economic loss of up to 12 trillion yen per year after 2025 (“2025 Digital Cliff”) if it is unable to leverage new digital technologies to develop innovative business models or modify existing ones in order to drive revenue growth and enhance competitiveness.
Obviously, the “if everything stays the same” hypothesis has been thoroughly thrown out by the arrival of generative AI applications. In a recently published report, “AI in software engineering at Google”, the search giant showed that the AI-assisted number of code characters has reached 50%. I wish someone would go back to that report and update it with current productivity data. At the most basic level, assume that Japan has around 1.2m software engineers (making up numbers here). If the gap in 2025 was assumed to be 400k developers, but the 1.2m “butts in seats” are now 30 to 50% more productive, then the cliff has been flattened into a rather comfortable dune.
In other news, Sumitomo Mitsui Card and ELYZA, a company promoting the social implementation of Large Language Models (LLMs), have launched the production use of generative AI, powered by ELYZA’s Retrieval-Augmented Generation (RAG) technology, at Sumitomo Mitsui Card’s contact center.
The AI has been in use for email response operations at the contact center since the end of June 2024. Within the year, Sumitomo Mitsui Card plans to expand the use of similar generative AI to chat inquiries, potentially integrating it into business applications via APIs. Ultimately, this implementation is expected to reduce the time required for operators to respond to customer inquiries by up to 60%, significantly improving productivity.
Poof! Let me ask you, what is Japan going to do with all its excess workers?
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.
