Laws & regulations: how Revolut is set to shake up Japan’s banking industry

Some stereotypes about establishing a business in Japan die hard: the market is impossible to enter, the level of bureaucracy is overwhelming, most services are extremely regulated… Imagine now that the industry you’re trying to address is itself probably the most regulated around the world: banking. How to navigate the intricacies of Japan’s regulations, and fill form after form, in Japanese, in order to obtain the right to operate?

Enters Revolut, and our guest today, Rishi Stocker. Listen to him, and you’ll feel that all of the above is as easy as buying groceries from the next door konbini. With only 2.5 years of existence and already 1.8M users, Revolut is coming to Asia, and positioning itself to shake up the seemingly impossible-to-enter Japan. And guess what? It is happening in Q3 this year.

Wait, what’s Revolut?

In short, it is one of the fastest growing fully online bank of the past couple of years: “Our value proposition is very straightforward. When we started, sending money around the world through traditional banks was setting you back 5 to 8% of the total amount you were wiring. Transferwise was already in the market, and managed to lower that to 1.5–2%. So we came in and said: why not create an app and a card that allows you to spend and send money anywhere in the world with absolutely zero fees?” Rishi starts, “and that was basically our MVP. A handful of people started using the service, when travelling abroad or wiring money to relatives around the world, and just by word of mouth, we now have a little less than 2M users. The interesting part is, over 2.5 years of existence we haven’t spent any single dollar (or any other currency, for that matter) in marketing.”

“After that, we started adding services mostly by listening to our early adopters: insurance, savings, loans… Loans are a pretty funny example of how broken traditional banking is for international people. We ran an experiment in our multicultural London office, asking employees to apply for loans via traditional channels, and the result was abysmal. Practically nobody could get a loan, including our CEO (laughs). That’s when you realize the system is a bit broken. So we started looking at customers’ usage data: where do they spend money, how money friends do they have, what do they do on the week-end. And based on that, we we were able to a create a credit scoring system much more reflective of someone’s creditworthiness”. By now you’re probably wondering how Revolut makes money: “It’s a question we often get. The thing is, users come in for the fee-free spending and transfers, and after that, because they really like that service, they’re ready to try our other disruptive products and pay for them. We actually had our first break-even month recently”.

Exploring Asia

After that initial phase, it was also obvious that Asia was strategic for us. We started looking into the main hubs, like Singapore and Hong-Kong. But those supposedly transparent markets are not as straightforward as people make out. On the other hand, we felt that Japan was a very underestimated market: inbound tourism is much talked about, but what most people fail to see is that the number of outbound tourists is also growing fast, with over 20M people traveling abroad every year, going to the US, China, Italy…”. If you’ve been living in Japan for a while, you’ll probably argue that most people still heavily rely on cash though “That’s true, and when it comes to traveling it becomes a pain-point to solve: people are queueing and sometimes wait for an hour just to exchange currency”.

“Now for the purely local market, there are a few hindrances that we need to address carefully: for example the payment method field is saturated, with 100 ways to pay at your local konbini. So we know we don’t want to create a new payment method. Also, as mentioned most people are still carrying a lot of cash around, and we’re probably not the go-to service for cash-only transactions at home (maximum monthly free ATM withdrawal amount is roughly 60,000¥). Lastly, among the first things we hear is ‘you will need supreme customer support in Japan.’ Now believe it or not, but we found that group of Japanese-speaking people in Krakow who’ll handle our customer enquiries at first (laughs)”.

Four tips to enter Japan

“So we’ve been working on the Japan launch for 6 months now, and these are a few pieces of advice that I collected — some may seem counter-intuitive, some you just don’t think about”. Sort of the Rework of market entry, in short.

Meet the regulators

“We started by talking to lawyers, and when they hear ‘market entry’ their faces lighten up, it’s kind of a dream situation for law firms. So they quoted us for three different licenses we apparently needed. In the meantime we went directly to the regulators, explained our service, and figured out together a way to quickly get our license — It turned out we only needed one”, Rishi shares.

“Another thing we managed to deal with regulators is that our customers will be able to do a few things before we actually need to confirm their identity fully: create an account, do a few small amount transactions and get used to the product”.

Apply for grants

““That part was more straightforward: for our kind of industry, we were eligible for a 70,000$ grant from the government”. Many companies I’ve met in Tokyo didn’t know about this and missed out so you have to make sure you dig around for this type of support. In fact if we hadn’t received this support initially who knows whether we would have looked at the market seriously”.

Don’t underestimate integration with local partners

“Initially we thought it would be easy to integrate with local banking partners, since most APIs are very well documented now. So we received API docs, and obviously we first had to translate them from Japanese to English. That’s when problem started (laughs). We ended up needing one person working full-time with these folks to understand the nuances of these integrations, and explain them to our tech teams”.

Focus on your MVP

“One last advice I would have is to go back to basics when you enter a new market. As I said our initial value proposition was very simple, and that’s what attracted users in the first place. After that we added new services and developed our offering, but we have to accept the fact that whatever services we offer in new countries, we’ll probably be one step behind our more mature markets.”

Saving the best for the last… How about Crypto?

“We get that question a lot too (laughs). Japan is one of the largest markets for cryptos, and we think we have a very differentiated offering, providing the easiest way out there to get exposure to the likes of Bitcoin or Litecoin with just a few clicks”.

Well that was dense, thanks a lot Rishi for the talk!