Taiga Sawamura, Co-Founder & Chief Executive Officer at Emerada, shared his personal journey from investment banking at Nomura and Goldman Sachs to establishing one of the most exciting FinTech startups in Japan at a Tokyo FinTech Meetup recently. Please see for a summary of his talk below — you can also view the full presentation on our YouTube channel.
I grew up in America until I was eight years old, when I came back to Japan. I went to Keio University, and I did an internship at Monex, one of the largest online brokerage firms. In 2004, 2005, the company was probably the most innovative financial institution in Japan, led by a former Goldman Sachs Partner. Working at Monex was really exciting. I had no experience dealing with money moving around, with share prices and all the indices going up and down. Things change pretty fast in the financial world, which made me feel that I actually want to devote myself to the industry more.
After I graduated from Keio, I accepted a position at Nomura. Right after I joined Nomura, where I was in the Investment Banking division doing Mergers & Acquisitions, the financial crisis happened. Lehman Brothers went bankrupt, and Nomura bought Lehman’s European and Asian businesses.
I was sent to Europe back then. I helped a lot of transactions and also was involved with the PMI (Post Merger Integration) process. I learned a lot during that period, because there were so many talented people working at Lehman, but the business was not profitable at all.
Many senior bankers get paid a lot. But the organization overall was not working properly. You see this even with the recent case at Deutsche Bank, which has to restructure globally. This trend was pretty obvious, even back in 2008. And I was lucky, because I could feel that things are not working out.
Then I joined Goldman Sachs. One of my counterparts had asked me to come over, because I was obviously one of the most hard working junior bankers. Goldman Sachs, like any investment bank, needs a lot of young staff who can spend 24 hours in the office. At Goldman Sachs, I was in the Investment Banking division as well.
Throughout my career in investment banking, I was dealing with large clients, really big firms, critical ones. Sometimes Japanese firms acquired an overseas business, sometimes vice versa. In the financial world, when dealing with these large firms, all information is public. There is not much that you can do to move the industry to the next level, because all the information is easily available.
There are many different banks chasing many different deals with different approaches. You also need to remember that companies that are receiving those investment bank’s advice, they have experienced people in the firm.
There was a moment when I was helping out my friend’s small company, with only five employees or less, they were struggling with the financing stuff. They did not know what to do about it. And they were not given much choice.
So I was thinking, there are millions of companies like that, which do not know what to do, and they do not even get help from financial institutions. This experience made me quit this established world, and come to a startup.
When I started my own firm, the main concept that I had in mind was the difference between public markets and private markets. So in public market, you can easily get the latest financial statements, we have lots of articles about companies, including analyst reports.
But if you go to the private market, there is not much data. Unless you are an investment manager in a private equity firm, you do not have a chance to see what is going on with these small businesses. The private market is a jungle. I wanted to bring in transparency, and a sharing system to this jungle, so that we can go to the next level.
So this was some background about me doing business, and what was the concept that I had back then. And the key trend that pushed me to quit Goldman and start this business was open banking.
In 2016, when I quit, I hardly anyone talked about open banking. but there were a few evangelists, and many regulators were starting to have the preliminary dialogue, about opening up these kinds of information, what is the legal framework that they need to prepare, etc. I thought I should quit now, before things are getting started.
Japan is one of the most advanced countries which embrace this concept, and enforce it actually. Many different countries are all talking about open banking, but in terms of the legal framework, the UK, Japan, they were the first two countries to actually implement it.
Banks hold many records of everything, every payment that we make in our daily life. But large firms do not really make much use of this information. They do not appreciate the data they have. They are just leaving it in their system and are doing nothing about it.
Open banking forces banks to release their data in a secure, standardized form, which is known as an API (Application Programming Interface), so that it can be shared more easily between authorized organizations.
So far, without this open banking concept, the only thing you could do was screen scraping. You could not knock on the door of the bank and say, “Hey, I want to connect to your system so that I can access your data in a very secure way.” It wasn’t like that. But through 2018, the UK and Japan actually did this, they passed the regulation, which is now coming into effect. And we are one of the first licensed organizations in Japan. Other authorized organizations are big corporations like in SoftBank, KDDI, Docomo, and a few other publicly traded cloud-based accounting firms.
Open banking makes it possible to pass this rich information to third parties. We can use it to make new products, The account holder must give their approval, and the account holder himself or herself has the rights to all their data across all banks.
Our world is finance, provided by regional banks or large mega banks to SMEs, small businesses. Normally, the number of employees is less than 10 or 20 people. Most of these companies have less than one million US dollars in annual revenue. So they are pretty small. In this world, when banks provide their services to SMEs, they can only rely on their own information. SMEs normally have three to six different bank accounts. It does not make any sense to just look at the individual pieces of data, because that does not represent the whole company.
So what we are doing now is to ask SMEs, to open up their data in each different bank. We will aggregate it,and we will provide you a better lending experience. We will also provide you with accurate forecasts of the cash flow going forward. And we will help you do cash management. Because running out of money is always the biggest risk for small companies. We provide all this data across banks and accounts (with the approval of the account holder) to any bank so that they can provide a better service. That is game changing. It is highly, highly disruptive.
We partner with regional banks first, and we ask them to pitch the service to their customers. So we are spending zero marketing yen. We are receiving so many inbound inquiries, because banks really need this. There are 3.1 million small businesses in Japan. So it is a big market. At the same time, it is a very competitive market, with over 500 banks competing. But everyone pitches the same thing to the same company. At the end, if you do that, the companies are simply going to compare all the terms, and going with the lowest rate. It is a race to the bottom. The level of interest rates is already lower than the risk premium for a small business.
In Japan’s banking market, the top four banks cover 70 percent of the payments, which also implies they hold 70 percent of the cashflow data. But they only provide 30% of the SME lending. That is a total imbalance. Which means that there are so many regional banks making lending decisions that do not capture the required payment data. They do not understand the risk of the company, but they are providing a loan. So this is very, very dangerous,
Seven out of the top 10 regional banks are already our partner. The reason why they are partnering with us is because they want to have access to the big banks’ data. They are providing 70% of the lending, they deserve to check 70% of the cash flow data in this market. And we are hoping to enable them to do that. And actually, we are not just doing 70%, we are doing one hundred percent.
Right now, we have 14, partner banks, we will see 50 banks joining our platform in the next year, and we ultimately want to expand this number to 200. We are positive things are changing in Japan. I am pretty excited, there are large firms, successful startups, everyone is getting into this market, but yet we are the ones who have a unique positioning and technology.
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