Japan FinTech Observer #46

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

Norbert Gehrke

Norbert Gehrke

— 8 min read
Japan FinTech Observer #46

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

We did not host a live session this week (blame the Taylor Swift and the Super Bowl), but have published the recordings of the February 4 edition, as well as our conversation with Bruno Diniz on FinTech in Brazil & Latin America.

Here is what we are going to cover this week:

  • Venture Capital & Private Markets: Private equity deal value in Japan was down 73% in 2023 compared to the prior year; Singapore’s Temasek and Japan’s Norinchukin Bank are set to anchor a USD 173m fund; Minto has raised funds from NTT Docomo Ventures; GMO VenturePartners have led the Series B funding round for OTO; Reazon Holdings has successfully closed an investment in Validus Vietnam
  • Insurance: Japan’s Financial Services Agency has urged four major non-life insurance companies found to have rigged insurance premiums for corporate clients to accelerate sales of cross-shareholdings
  • Banking: 01Bank has decided to adopt GMO Aozora Net Bank’s Banking-as-a-Service offering; MUFG-backed ChargeAfter, the embedded lending platform for point-of-sale financing, has been selected by Citi for its Citi Pay® products
  • Payments: Digital Wallet Corporation (DWC) has reached an agreement with Seven Bank to acquire its subsidiary and international money transfer service, Seven Global Remit; IDEX Biometrics and KONA I are partnering to deploy biometric payment and access cards in Japan; Japanese communities are creating currencies to educate and empower citizens
  • Capital Markets & Asset Management: Life insurer Dai-ichi Life Holdings has reached agreement with the parent company of Benefit One on its bid to acquire the health care platform; Activist investor Elliott Management has acquired more than 2% of Mitsui Fudosan’s shares and is seeking a JPY 1trn share buyback
  • Digital Assets: B2C2, founded in 2015 and majority owned by Japanese financial group, SBI, has become the 12th virtual asset service provider (VASP) registered in Luxembourg; Hakuhodo and Japan Airlines announced the second phase of demonstration experiments for “KOKYO NFT”; Animoca Brands Japan has announced a new partnership with HashPalette to facilitate the global expansion of Japan’s Web3 gaming sector
  • The Last Word: Money under the mattress

Source: Tokyo Metropolitan Government

The Tokyo Metropolitan Government has announced the winning companies for the 2023 Tokyo Financial Award. The award ceremony will be held on March 5 at JP Tower, and will include an address by Governor Koike. The Tokyo Financial Award was established in FY2018 to recognize outstanding efforts of FinTech companies that are developing innovative financial products and services to solve the most pressing issues faced by Tokyo residents, and ESG investment firms.

Congratulations to the winners in the financial innovation category: Toggle AI, Credit Engine, Inc., and Inovat; and to the winners in the ESG category: Kayrros, ANRI, Nature Innovation Group, and TBM Co., Ltd.

Venture Capital & Private Markets

Source: S&P Global

Ecosystems

  • Major telecom carrier KDDI is planning to raise its stake in convenience store chain Lawson to 50% to take advantage of the latter’s nationwide retail store network and customer base while offering technology to transform its business model
  • KDDI currently holds 2.1% of Lawson shares, but will invest about JPY 500bn (USD 3.4bn) to increase its stake through a tender offer that will likely start around April and finish in September; if the deal is realized, KDDI will jointly manage Lawson with trading house Mitsubishi Corp., which now holds 50.1% of Lawson, and will take the convenience chain private
  • With the emergence of PayPay, the KDDI point system, “Ponta”, has been relegated to fourth place, lagging undisputed leader Rakuten by a wide margin, followed by NTT Docom and PayPay; seen through the lens of these ecosystems, or “economic zones” as they are often referred to in Japan, KDDI’s investment can be seen as an attempt to bridge the digital and physical worlds and strengthen the value proposition for Ponta

Insurance

  • Japan’s Financial Services Agency has urged four major non-life insurance companies found to have rigged insurance premiums for corporate clients to accelerate sales of cross-shareholdings; the financial industry watchdog suspects that the environment for competition may have been distorted by the practice of holding shares in client companies to maintain good relations with them; in December last year, the FSA issued business improvement orders to the four major insurers — Tokio Marine & Nichido Fire Insurance, Sompo Japan Insurance, Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance; the companies were accused of presetting premiums for insurance products for corporate clients before bidding; as of the end of March 2023, the four companies held a total of about JPY 6trn in cross-shareholdings; the companies are expected to include plans to accelerate sales of such shares in their business improvement plans to be submitted to the FSA at the end of this month

Banking

  • 01Bank (Zero One Bank, currently under preparation, subject to approval from relevant authorities) of Ikeda Senshu Holdings has decided to adopt GMO Aozora Net Bank’s “BaaS by GMO Aozora”; GMO Aozora plans to provide banking functions such as deposits, loans and credit screening analysis to the new 01Bank in a BaaS format; by doing so, GMO Aozora will contribute to 01Bank’s stated goal of building a “data-driven” banking system that provides “security,” “flexibility,” and “low cost” with “high quality UI/UX”
  • ChargeAfter, the embedded lending platform for point-of-sale financing announced that Citi Retail Services, one of North America’s largest and most experienced retail payments and credit solution providers, selected ChargeAfter as a technology provider for its Citi Pay® products, including Citi Pay® Credit and Citi Pay® Installment Loan; MUFG Innovation Partners, the corporate venture capital arm of MUFG, invested in ChargeAfter in June 2020

Payments

  • Global IT and fintech company, Digital Wallet Corporation (DWC), has reached an agreement with Seven Bank, a Japanese bank run by Seven & i Holdings Co Ltd, operating Seven-Eleven stores in Japan, to acquire its subsidiary and international money transfer service, Seven Global Remit; DWC owns and operates Smiles Mobile Remittance (Smiles), known as Japan’s first and most popular mobile remittance application; with the alliance between DWC and Seven Bank, all Smiles customers will gain access to Seven Bank’s extensive ATM network after the service transition
  • IDEX Biometrics and KONA I are partnering to deploy biometric payment and access cards in Japan; with credit card fraud reported by Japanese companies increasing by 30% year over year to USD 294 million, banks in the market are showing interest for biometric smartcard solutions, and especially metal cards; KONA I expects banks to begin offering high-technology biometric cards to consumers in the second half of 2024
  • Japanese communities are creating currencies to educate and empower citizens; Japan’s first community currency appeared in 1973, when Teruko Mizushima established the Volunteer Labor Bank in Osaka; Mizushima envisioned community members helping one another through service, with the VLB’s unit of exchange being the number of hours spent engaged in labor; this spawned numerous other systems that in turn paved the way for the Sawayaka Welfare Foundation’s fureai kippu (literally, “human connection tickets”) in 1995, issued primarily in exchange for elderly, disabled and child care work, whereby credits were either kept for one’s own use or transferred to others in need

Capital Markets

  • Life insurer Dai-ichi Life Holdings has reached agreement with the parent company of Benefit One on its bid to acquire the health care platform; the agreement with temporary staffing service company Pasona Group, which owns 51.16% of Benefit One, is crucial for Dai-ichi to win the battle against digital health care provider M3, which first launched a tender offer in November after reaching an agreement with Pasona; Dai-ichi Life’s counter bid in December, unsolicited at the time, surprised investors as life insurers are considered most conservative in Japan’s conformist business culture where unsolicited buyout offers are still rare
  • Activist investor Elliott Management has acquired more than 2% of Mitsui Fudosan’s shares and is seeking a JPY 1trn share buyback; Elliott also demanded the company sell down its USD 3.6bn stake in Oriental Land, which runs Tokyo Disneyland; Mitsui Fudosan’s shares reached a record high during the week

Digital Assets

The Last Word: Money under the mattress

Money under the mattress, or rather in the chest of drawers (“たんす預金” in Japanese), declined 0.01% in December 2023 compared to the same month last year, according to a report by Hideo Kumano, Chief Economist at the Dai-ichi Life Research Institute, and referred to by the Nikkei.

Although the rate of decline was small, the amount outstanding was approximately JPY 1trn lower than the most recent peak in January 2023.

It is widely expected that the departure from a negative/zero interest rate policy and the issuance of new bank notes mid-year will lure more of the tansu yokin out into the open

See also: The Curious Case of Cash in Japan (2018)

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.

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.

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