Japan FinTech Observer #49

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

Japan FinTech Week has started with the tenth iteration of BGIN, short for Blockchain Governance Initiative Network, on Sunday. This is certainly the event closest to academic research, with extensive 90 minute discussions, going beyond the typical conference panel platitudes. I am hoping for some osmosis taking place, with all the super-smart people around me.

In cross-industry news, SoftBank and Humane have announced a partnership that will include working together on an app-less ecosystem of third-party services and AI-driven user experiences in Japan. Can you envision an app-less future?

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Japan Investment Corporation (JIC) has made LP investments totaling USD50 in Atomico funds, a European technology-focused investment company; residential rental operator Weave Living targets Japan with a USD 500m fund; MUFG Trust & Banking participates in 1 billion yen Series A round for Yamori; SoftBank has further reduced its stake in Indian payments firm Paytm to 2.83%; gumi Cryptos Capital leads the pre-seed round for Arkis
• Insurance: Insurtech 3.0? Top 10 trend predictions for 2024; four insurers implicated in a price fixing scandal submitted business improvement plans on the same day to the Financial Services Agency
• Banking: Mizuho Financial Group intents to designate Mizuho Americas LLC as its U.S. intermediate holding company; SMBC’s “Olive” service, launched in March 2023, has reached 2m opened account; GMO Aozora Net Bank has reached over 600 BaaS service contracts across their decomposed banking functions; Saikyo Bank will start its single-platform journey with nCino by introducing the technology to its mortgage operations; MUFG Trust & Banking will begin providing financial institutions with the “News AI Searcher (NAIS)” service jointly developed with MILIZE
• Payments: Nium has secured a Type 1 Funds Transfer Service Provider (FTSP) license from the Japan FSA; Adyen announces a partnership with Qoo10, an online marketplace operated by eBay Japan; HIVEX has now launched CPM (Consumer-Present Mode), allowing Taiwanese users access via PayPay at Japanese merchants
• Capital Markets & Asset Management: Nomura Asset Management (NAM) plans to offer an alternative investment solution named Nomura Alternative Connect (NAC); MUFG will make Mitsubishi UFJ Asset Management a direct subsidiary on April 1, 2024, in line with its strategic plan; JR West, NTT Communications, Mizuho Bank, Sumitomo Mitsui Banking Corporation, MUFG Bank, and Development Bank of Japan will launch a comprehensive infrastructure management business called “JCLaaS”; Japanese e-commerce company Rakuten Group is planning to issue up to ¥100 billion ($666 million) of corporate bond-type shares to strengthen its financial position; according to Morningstar, Japanese equity funds focusing solely on domestic markets received only $1.2 billion in January
• Digital Assets: Coincheck and Circle partner to expand USDC access in the Japanese market; Crypto Garage has launched an Ethereum (ETH) staking service; SBI Traceability introduced blockchain and IoT (NFC tag) technologies at sake brewery Shimizu Seizaburo Shoten, makers of the popular “Zaku”
• The Last Word: Why Japan does not need immigration

Venture Capital & Private Markets

• Japan Investment Corporation (JIC) has announced its decision to make LP investments of USD20 million and USD30 million, respectively, in Atomico Venture VI and Atomico Growth VI, which are managed by Atomico (UK) Partners, a European technology-focused investment company; JIC aims to stimulate a virtuous cycle of risk capital to support next-generation industries in Japan; to achieve this vision, JIC promotes open innovation as a means for supporting growth and enhancing the international competitiveness of businesses. JIC approaches these challenges by stimulating private sector investments in open innovation together with JIC’s own investment, while fostering investment professionals
• Weave Living has secured further investment as the rental residential operator looks to double its portfolio; the news comes just a few weeks after Weave formally launched fundraising for its inaugural multi-family fund dedicated to the Japan market; Weave Living Japan Residential Venture I is planned as the first in a series of vehicles targeting the rental housing sector in Asia’s second-largest economy, with an initial target of raising $500 million in equity from global institutional investors
• DNX Ventures recently led a 1 billion yen Series A round for Yamori, which is working to revitalize vacant houses and used apartments with the mission of “democratizing real estate”; this is DNX’s second investment in the company, following the seed round in 2021; in addition to DNX, investors in this Series A round include MUFG Trust and Banking Corporation and MetaProp, the largest venture capital in the United States specializing in real estate
• SoftBank has further reduced its stake in payments firm Paytm to 2.83% from 5.01%, an exchange filing showed; the conglomerate, which held 17.5% stake in Paytm in September 2022, has trimmed its ownership for more than a year through multiple open market deals, with its most recent cut being in January
• gumi Cryptos Capital leads the pre-seed round for Arkis, which is rebuilding the world of undercollateralized lending on-chain brick by brick after the seismic damage caused by the collapse of FTX

Insurance

• Insurtech 3.0? Top 10 trend predictions for 2024 and beyond, by Dominique Roudaut, Chief Strategy & Innovation Officer at MS&AD Ventures
• Mitsui Sumitomo Insurance Group and Aioi Nissay Dowa Insurance, subsidiaries of MS&AD Insurance Group Holdings, this week submitted their Business Improvement Plans based on administrative actions issued by the Financial Services Agency on December 26, 2023 to FSA; MSI and ADI will steadily implement the business improvement plans and report the progress to FSA every three months (Initial reporting base date: end of May 2024)
• The other three insurers implicated in the scandal also submitted business improvement plans the same day to the Financial Services Agency following its order to improve their operations over price fixing; a total of about 130 executives at the four major Japanese property and casualty insurance companies will take up to 50 percent pay cuts for colluding to fix prices in contracts with corporate customers and government agencies

Banking

• Mizuho Financial Group (MFG) has announced its intention to designate Mizuho Americas LLC (MALLC), a wholly owned U.S. subsidiary of MFG’s direct subsidiary, Mizuho Bank (MHBK), as its U.S. intermediate holding company, as defined in the U.S. Federal Reserve Board’s Regulation YY; under Reg YY, MFG, a foreign banking organization in the U.S. with more than USD 100 billion in combined U.S. assets, is required to designate an IHC on the first day of the ninth quarter following the date on which its average U.S. non-branch assets increase to USD 50 billion or more
• Sumitomo Mitsui Banking Corporation and Sumitomo Mitsui Card Company began offering the comprehensive financial service “Olive” for individual customers in March 2023; the service has received a huge response immediately after launch, and the number of account openings have already surpassed 2 million since the service started; SMBC’s mid-term goals remains 12 million account openings within 5 years of the service launch

• GMO Aozora Net Bank has reached over 600 BaaS service contracts across their decomposed banking functions such as dedicated screens, branches, and cards; the bank started offering banking APIs in January 2019
• nCino, a cloud banking platform for global financial services, has announced that Saikyo Bank, a $20 billion-asset regional bank in Japan, will implement nCino to improve operational efficiencies and customer convenience; Saikyo will start its single-platform journey with nCino by introducing the technology to its mortgage operations; the Japanese regional bank selects nCino to create a customer-driven mortgage lending experience by streamlining processes and systems onto a single platform
• MUFG Trust and Banking will begin providing financial institutions with the “News AI Searcher (NAIS)” service jointly developed with MILIZE; it is a system that can be used for news analysis and due diligence operations in market operations using AI, and improves operational efficiency by eliminating the need to extract, analyze, and consider negative information from the large amount of news distributed daily

Payments

• Nium, the leader in real-time cross-border payments, has secured a Type 1 Funds Transfer Service Provider (FTSP) license from the Japanese Financial Services Agency (JFSA); the Type 1 license authorizes Nium to provide a wide range of financial services, including transferring up to 50 million JPY per transaction via Zengin-Net, Japan’s local payment clearing rail, to a Japanese beneficiary account
• Adyen, the financial technology platform of choice for leading companies, announces a partnership with Qoo10, an online marketplace operated by eBay Japan; by seamlessly managing and optimizing payment flows in a single platform, Adyen will support Qoo10 with fast and stable payment processing, particularly during peak periods
• HIVEX Network is a collaboration with leading MPSPs in Japan and Taiwan, including — among others — PayPay; HIVEX enables Taiwan MPSP users to continue using their trusted mobile payment applications to make CPM or MPM purchases at PayPay-affiliated stores in Japan; after the successful October 2023 HIVEX payment network launch of MPM (Merchant-Present Mode; when a consumer uses their mobile app to scan a QR code), HIVEX has now launched CPM (Consumer-Present Mode), which enables a merchant POS scanner to scan QR codes and/or barcodes on the consumer’s mobile device

Capital Markets & Asset Management

• Nomura Asset Management (NAM), the core company within the Investment Management Division of Nomura Group, plans to offer an alternative investment solution named Nomura Alternative Connect (NAC); the service, which will provide access to global alternative investment products, is scheduled to start in the fiscal year ending March 2025
• MUFG has decided to transfer all Mitsubishi UFJ Asset Management (MUAM) shares held by Mitsubishi UFJ Trust and Banking Corporation to MUFG on April 1, 2024, via a dividend in kind; this follows on last year’s “Strategic Initiatives for Enhancing MUFG’s Asset Management Business” announcement, which stated that MUFG had decided to alter the capital ownership of MUAM and had commenced detailed deliberations toward that end; In January, MUFG published a comprehensive strategy blueprint for its asset management business
• JR West, NTT Communications, Mizuho Bank, Sumitomo Mitsui Banking Corporation, MUFG Bank, and Development Bank of Japan have signed a business alliance agreement today to launch a comprehensive infrastructure management business called “JCLaaS”; the market targeted by “JCLaaS” is huge, with annual maintenance costs and renewal investments estimated to be around 9 trillion yen (Ministry of Land, Infrastructure, Transport and Tourism) and 12.9 trillion yen (Financial Research Center of the Ministry of Finance Japan), respectively; JCLaaS aims to expand its business to over 100 municipalities by 2030
• Japanese e-commerce company Rakuten Group is planning to issue up to ¥100 billion ($666 million) of corporate bond-type shares to strengthen its financial position; Rakuten plans to sell as much as 75 million of the stocks, which will have no voting rights and can’t be converted into common shares, avoiding any dilution; fixed dividends will be distributed for about five years and the shares can be called after that period, it said; details including the size, terms and the timing of issuance will be decided at a later date, and the proceeds can be used for debt redemption
• According to Morningstar, Japanese equity funds focusing solely on domestic markets received only $1.2 billion in January, compared with an inflow of $7.8 billion into funds with a foreign investment focus; of this, U.S.-focused equity funds received $3.8 billion, while those targeting broader global equities secured $3.1 billion; Indian equity-focused funds saw an influx of $763 million in the same period

Digital Assets

• Coincheck and Circle, a global financial technology firm and the issuer of USDC, announced their plans for a partnership to expand USDC access in the Japanese market; Coincheck’s initiative to incorporate USDC as part of its products and services is subject to obtaining registration of an Electronic Payment Instrument Services under the Payment Services Act
• Crypto Garage has launched an Ethereum (ETH) staking service that complements their existing institutional digital asset custody service “SETTLENET CUSTODY”, which will allow clients to earn rewards on their ETH holdings while securely stored in custody
• SBI Traceability announced that “SHIMENAWA,” a traceability service that enables strong linkage between physical assets and digital information through the fusion of blockchain and IoT (NFC tag) technologies, has been introduced at sake brewery Shimizu Seizaburo Shoten (headquartered in Suzuka City, Mie Prefecture)

The Last Word: Why Japan does not need immigration

Unpopular opinion alert! People keep arguing that Japan needs more immigration to solve the labor shortage. The underlying premise of such statements is that these additional workers are needed to keep everything going like we have always done it. Instead, the pressure that is building up in the labor markets should be used to simplify, digitize & digitalize, re-engineer & re-arrange whole value chains. We see green sprouts of that, shelf-stocking robots, unstaffed stores, autonomous trucks between Osaka and Tokyo, etc. Much more can be done, even with the technology that is available today.

In case you missed the Klarna story this week:

• The AI assistant has had 2.3 million conversations, two-thirds of Klarna’s customer service chats
• It is doing the equivalent work of 700 full-time agents
• It is on par with human agents in regard to customer satisfaction score
• It is more accurate in errand resolution, leading to a 25% drop in repeat inquiries
• Customers now resolve their errands in less than 2 mins compared to 11 mins previously
• It’s available in 23 markets, 24/7 and communicates in more than 35 languages
• It’s estimated to drive a $40 million USD in profit improvement to Klarna in 2024

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.