Japan FinTech Observer #79

Welcome to the seventy-ninth edition of the Japan FinTech Observer.

Cliff-hanger, suspended in mid-flight, the Tokyo Stock Exchange closed on Friday right before the run-off results between Ishiba and Sakaichi for the LDP Presidency, with the “smart” money backing the latter (Nikkei up, JPY down). After the surprising result, the FX market reacted promptly (JPY up), while Nikkei Futures indicated a 4% downward move, which turned into close to 5% today. No reason to panic (yet), as we are right at the mid-point for the September trading range between 36,000 and 40,000. However, as China has exercised its “policy put” to put a floor under its market last week, it remains to be seen whether all that money that was “uninvestable” in China not long ago and migrated to Japan, will find its way back, thereby putting a ceiling over the Japanese market until new catalysts emerge.

On a related note, if I had received a dollar every time I read “Japan inaugurated a new Prime Minister” in posts since Friday, I would not be writing this newsletter anymore. Should we be concerned that Japanese, predominantly male and in their 20s, do not understand how their own democracy works? The extraordinary Diet session that is to elect Ishiba is set to take place tomorrow.

Here is what we are going to cover this week:

• Venture Capital & Private Markets: SMBC invests JPY 10bn in Infcurion, combining to create leading digital payments platform; SBI Holdings has invested in UBX Philippines; Saison Capital participates in Meridian’s USD 4m seed round; Orient Commercial Joint Stock Bank and Genesia Ventures have signed a strategic cooperation agreement
• Insurance: JI Accident & Fire Insurance has started offering the “Suitcase Damage Claims Automatic Payment Service”
• Banking: Mitsubishi UFJ Trust and Banking Group presented at the Snowflake World Tour Tokyo; MUFG has published its Transition Whitepaper 2024
• Payments: DG Financial Technology’s shared QR code payment solution “Cloud Pay” has been adopted by Square; NETSTARS has partnered with ACI Worldwide
• Capital Markets & Asset Management: Nomura Securities to be fined for unlawful trading of Japanese government bond futures in March 2021; the TSE Asia Startup Hub has selected 14 companies; Nasdaq-listed SYLA Technologies, operator of the largest membership real estate crowd-funding platform in Japan; has released first half results
• Digital Assets: DMM Bitcoin has received a business improvement order; Oasys is collaborating with the Arbitrum Foundation to integrate Arbitrum Orbit; 21X has announced a strategic partnership with SBI Digital Markets; Visual Voice implements “scramberry WALLET SUITE,” a service provided by NTT Digital
• The Last Word: Ranking Japan’s FinTech Sector

Venture Capital & Private Markets

• SMBC invests JPY 10bn in Infcurion, combining to create leading digital payments platform: Sumitomo Mitsui Card, Sumitomo Mitsui Banking Corporation, and Infcurion have concluded a capital and business alliance agreement for collaboration in the business payment and financial services sector; through this alliance, Infcurion will play a key role in the “SMBC Group’s Cashless Payment Strategy” primarily promoted by Sumitomo Mitsui Card; it aims to build and provide Japan’s №1 solution platform that transforms businesses with cutting-edge solutions centered on payments, contributing to the evolution and expansion of the payment market
• SBI Holdings has invested in UBX Philippines, a company driving digital transformation in the Philippines; following this investment, the SBI Group holds a 16.67% ownership in UBX, which emerged as a spin-off from UnionBank of the Philippines in 2018 and focuses on providing digital transformation services for financial institutions, including BaaS and e-wallet development; it also develops open finance platforms such as lending and payment platforms and has a track record of supporting over 250,000 businesses
• Saison Capital participates in Meridian’s USD 4m seed round: Meridian, a decentralized liquidity marketplace and liquid staking protocol built on Movement, has raised its seed round, co-led by ParaFi Capital and Borderless Capital, with participation from Amber Group, Saison Capital, Interop Ventures, and Oak Grove Ventures; Meridian aims to spearhead the Move-based DeFi ecosystem on Movement, a network of blockchains created by Movement Labs
• Reserve Bank of India (RBI) registered non-banking financial corporation-micro-financing institution (NBFC-MFI), SATYA MicroCapital has successfully raised Rs 1000 million in debt funding from Mizuho Bank; it is the first time Satya has been backed by Mizuho Bank
• Orient Commercial Joint Stock Bank (OCB) and Genesia Ventures have signed a strategic cooperation agreement to provide financial support to technology startups in Vietnam; Genesia Ventures, a venture capital fund based in Japan and supported by Aozora Bank — a strategic shareholder of OCB — has demonstrated its commitment to the Vietnamese market; the fund primarily focuses on Seed and Pre-A stage startups across Japan, Indonesia, Vietnam, and India

Outside FinTech

• SBI Holdings and Shin Nippon Biomedical Laboratories (SNBL) have agreed to establish a USD 40m joint fund targeting early-stage startups in North America in a wide range of industries, including AI, advanced manufacturing, climate tech, supply chain, biotechnology and drug R&D
• Kagome, through its U.S. subsidiary GARBiC USA LLC, and Silicon Valley-based venture capital firm SVG Ventures have formed a strategic partnership, under which SVG will serve as the General Partner for a newly formed corporate venture capital fund aimed at accelerating innovation in the agricultural sector; the fund, named SVG Ventures Sunrise Fund, has $50 million under management and a 10-year investment horizon
• Terumo Corporation, a Japanese medical equipment manufacturer, has launched a new corporate venture capital (CVC) fund under the name “Terumo Ventures”; this initiative managed as a department within Terumo Americas Holding, will focus on driving the group’s venture investments; the newly established fund will invest $75 million in healthcare technologies; through these strategic investments, Terumo aims to explore potential mergers and acquisitions, further strengthening its position in the healthcare sector

FSA Workplan

A couple of weeks ago, the Financial Services Agency (FSA) published its Administrative Policy (i.e., Strategic Priorities) for the Fiscal Year 2024. On Friday, an additional document was provided, covering the achievements to date for each strategic pillar, and the work plan for this fiscal year.

The FSA will continue to strive to fulfill its mission of ensuring financial system stability and promoting sustainable economic growth by adapting to the rapidly changing environment, addressing emerging risks, and fostering innovation in the financial sector. Through effective use of data, close collaboration with stakeholders, and proactive communication, the FSA aims to contribute to the realization of a vibrant and resilient financial system that benefits all stakeholders.

Insurance

• JI Accident & Fire Insurance has started offering the “Suitcase Damage Claims Automatic Payment Service”, where AI detects damage to suitcases from photos of the damage and automatically transfers the insurance claims in the overseas travel insurance claim payment process; JI Accident & Fire Insurance built this service together with System Research and IBM Japan

Banking

• Our first event report from the Snowflake World Tour Tokyo provides a comprehensive overview of how the Mitsubishi UFJ Trust and Banking Group (MUTB Group) is leveraging Snowflake’s cloud data platform to overcome data management challenges and unlock new opportunities for data-driven decision-making and innovation across its various business units; the presentation at the event highlighted the journey of three specific entities within the MUTB Group: Mitsubishi UFJ Trust Investment Technology Institute (MTEC), The Master Trust Bank of Japan (MTBJ), and Mitsubishi UFJ Trust and Banking Corporation (MUTB)
• MUFG has published its Transition Whitepaper 2024; since 2022, MUFG has published an annual “MUFG Transition Whitepaper”, making this the third edition; this year’s edition focuses on three themes:1) optionality, 2) economic viability, and 3) end-user awareness and understanding (regarding price pass-through); based on these three themes, MUFG makes an argument for international collaboration

Payments

• DG Financial Technology (DGFT) announced that its shared QR code payment solution “Cloud Pay” has been adopted by Square (operated by US-based Block), one of the world’s largest payment platforms; as a result, QR code payments from seven brands, including China-based “Alipay+” and “WeChat Pay”, are now available at Square member stores in Japan
• NETSTARS has partnered with ACI Worldwide to support the further international development of cashless payments in Japan; the two companies will join forces to offer a one-stop payment acceptance solution for payment service providers and merchant acquirers to create a seamless and secure payment ecosystem for processing domestic and cross-border payments
• The first meeting of the Financial System Council’s “Working Group on Fund Settlement Systems” was held on Wednesday, September 25, 2024; as is customary, the secretariat has provided explanatory materials which outline the background, discussion points, and reference materials for the working group; it addresses the evolving landscape of payment and credit services in Japan, highlighting the emergence of new financial services, expanding user bases, and the need for regulatory adjustments to ensure a sound financial system

Capital Markets & Asset Management

• Japan’s Securities and Exchange Surveillance Commission today issued a recommendation that the Prime Minister and the Commissioner of the FSA impose an administrative monetary penalty against Nomura Securities for unlawful trading of Japanese government bond futures in March 2021
• The TSE Asia Startup Hub aims to create an ecosystem that fosters startup growth, focusing on promising Asian companies with ties to Japan, to support business expansion in Japan and partnerships with Japanese firms; this will in turn support IPOs on the TSE as one of the outcomes; in this context, the TSE has selected 14 companies, including a so-called unicorn, from six countries/regions (Singapore, Taiwan, Republic of Korea, Malaysia, Indonesia, and Vietnam) as companies to be supported
• Nasdaq-listed SYLA Technologies, operator of the largest membership real estate crowd-funding platform in Japan, Rimawari-kun, reported its interim financial results for the six months ended June 30, 2024; SYLA achieved a 13% revenue increase for the first half of 2024 compared to the same period in 2023, and anticipates the completion of nine new projects in the second half of 2024, which will boost gross profit

eXponential Finance Podcast

eXponential Finance Podcast, Ep. 143

Join us as we dive deep with Chino-san from Binance, exploring the transformation of Japan’s financial market through digitalization and cutting-edge technologies.

From his career journey at traditional exchanges (Tokyo Stock Exchange & Japan Securities Clearing Corporation) to pivotal roles at Kraken Digital Asset Exchange and Binance, discover why Binance stands out in revolutionizing the Japanese crypto industry.

Understand the challenges and opportunities within Japan’s financial and crypto sectors, including regulatory landscapes, token listings, and the introduction of stablecoins and ETFs. This episode offers a comprehensive view of the future of digital finance in Japan.

This episode is available on: Apple Podcasts, YouTube, Amazon Music, and many other major platforms via our Spotify Podcaster.

Digital Assets

• The Kanto Local Finance Bureau has issued a business improvement order to DMM Bitcoin based on a May 2024 incident where cryptocurrencies (BTC) managed by the DMM Bitcoin were improperly sent externally, resulting in the outflow of customer deposits (4,502.9 BTC)
• Oasys is collaborating with the Arbitrum Foundation to integrate Arbitrum Orbit — the Layer 2 and Layer 3 scaling solution for Ethereum — into its infrastructure; this marks the first time Arbitrum Orbit technology will be used outside of Ethereum’s L1 for gaming specific chains; by incorporating Arbitrum Orbit, Oasys’ Hub-Layer (L1) will support the creation and deployment of Verses (Oasys L2) using Arbitrum’s advanced scaling solutions
• 21X — a distributed ledger technology (DLT)-based market infrastructure for tokenized securities, which has applied for a license to operate a DLT trading and settlement system (DLT TSS) under the European Union’s DLT regime (DLTR) — has announced a strategic partnership with SBI Digital Markets (SBIDM), based in Singapore and a subsidiary of Japan’s largest online financial services group, SBI Holdings; under the terms of the collaboration, SBIDM will list tokenized securities on 21X’s DLT market, which provides a matching, trading and settlement system on a public permission-less blockchain
• Visual Voice Inc, the operator of the Short Shorts Film Festival & Asia (SSFF & ASIA), one of the largest international short film festivals in Asia and accredited by the U.S. Academy Awards, will introduce “scramberry WALLET SUITE,” a service provided by NTT Digital, to jointly study the use of blockchain for creators’ activity history certification, video asset management, and rights business

The Last Word: Ranking Japan’s FinTech Sector

Venture Capital Investments by Sector (Source: JIC)

To grasp the relative positioning of the FinTech sector in Japan, domestically we can seek to understand it in relation to other industry verticals, and internationally we may compare the FinTech sector itself across various countries.

For the former, the Japan Investment Corporation (JIC) has helpfully published its “Venture Capital Market Update” for the first half of 2024. According to their data, the funding amount by Fintech startups, which led fundraising during the past boom period, has declined significantly(JPY 57bn → JPY 11bn) over the past three years.

For the latter, the 36th edition of Z/Yen’s Global Financial Centres Index (GFCI) has been published, and Tokyo gave up the rank it had gained six months ago, settling back just inside the Top 20. Alongside the main GFCI index, Z/Yen also analyzes financial centres in terms of their FinTech offering. Here, Tokyo arrested its fall from 15th in September 2022 to 37th in September 2023 by moving up one spot despite losing seven points in the rating.

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