Japan FinTech Observer #40

Welcome to the fortieth edition of the Japan FinTech Observer. This one really could not carry over into 2024, and had to be published on schedule ;-)

The FSA cracked the whip on major non-life insurers, the Osaka Digital Exchange launched, Oki Matsumoto continued his deal making, Digital Garage & Resona are getting ever closer together: certainly not a boring week.

We are heading off to our countdown party. 2024 is going to be awesome. Happy New Year!

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Managing Partner Dai Watanabe laid out Delight Ventures’ investment policy, addressing “characteristics common in early-stage ecosystem evolution”; a success story of GMOVenturePartners investment in India's Bureau
• Banking: Fukuoka Financial Group's digital subsidiary and BaaS platform "Minna no Ginko" will not achieve profitability before FY2027; Manufacturers Bank, a wholly owned subsidiary of SMBC Americas Holdings, a member of SMBC Group, has changed its name to SMBC MANUBANK; SBI Holdings has completed the establishment of “SBI XDC Network APAC”, a trade finance joint venture in Japan, with TradeFinex Tech; a startup spotlight on "Know-Your-Business" (KYB) service provider SimpleForm
• Insurance: The Financial Services Agency (FSA) has issued business improvement orders against four major non-life insurance companies for violations of the anti-monopoly and fair trade acts in setting commercial insurance premiums, as well as general management deficiencies
• Payments: Online banking fraud has reached an all-time high in Japan; Digital Garage and Resona Holdings agreed to reinforce the capital and business alliance formed in November 2022; HDBank has become the official acquiring bank of JCB, and the parties will issue a co-branded credit card
• Capital Markets & Asset Management: Mizuho Americas is integrating the primary capital advisory services of Capstone Partners and the secondary liquidity solutions business of Greenhill Private Capital Advisory under a newly created Mizuho Private Capital Advisory platform; Morgan Stanley expects to record its highest-ever income from Japan; Cathie Wood buys Yahoo! JAPAN operator LY Corporation for first time in a year
• Digital Assets: Spotlight on Finschia, the blockchain network developed and operated by the Finschia Foundation and LINE NEXT; the Osaka Digital Exchange (ODX) commenced operations of “START”, a proprietary trading system (PTS) for security tokens; Monex Group will acquire the majority stake of 3iQ Digital Holdings, a pioneer in crypto asset management in Canada; SBI Holdings plans to acquire up to 3m additional shares in Gumi; The Japan Cryptoasset Business Association (JCBA) strongly recommends legal amendments that would allow Limited Partnership Funds (LPS) to hold cryptoassets; Mt. Gox appears to have started repaying some creditors
• The Last Word: Christmas Cake Conspiracy

Venture Capital & Private Equity

• In a recent blog post, Managing Partner Dai Watanabe laid out Delight Ventures’ investment policy, addressing “characteristics common in early-stage ecosystem evolution”, comparing the maturity of the venture ecosystems in the US and in Japan; he specifically addresses IPO obligations, personal liability clauses for entrepreneurs, and the need for a flexible stock options framework
• India's Bureau ID helps banks, financial institutions and enterprises with risk intelligence to protect every touchpoint in the customer journey against cyber fraud and compliance risk; the startup recently raised?additional capital?in a Series A funding round in July 2023, led by Japan’s GMO VenturePartners (GMO-VP), with participation from its sister company GMO Payment Gateway, the largest payment service provider in Japan

Banking

• Fukuoka Financial Group's (FFG) digital banking subsidiary "Minna no Ginko" was launched in May 2021, and was expected to become profitable within three years, i.e. during this fiscal year; after initially postponing the break-even to FY2025, Minna has now moved that target out further to FY2027; it has been more difficult than expected to build a sustainable Banking-as-a-Service (BaaS) business
• Manufacturers Bank, a wholly owned subsidiary of SMBC Americas Holdings, a member of SMBC Group, has changed its name to SMBC MANUBANK; the new name reflects the bank’s strategic vision to transform and expand its commercial banking business, compete in the digital consumer bank space through its Jenius Bank subsidiary, and further align with SMBC Group
• SBI Holdings has completed the establishment of “SBI XDC Network APAC”, a joint venture in Japan, with TradeFinex Tech, the promoter of the XDC Network, an enterprise-focused blockchain for the purpose of enhancing efficiency in trade finance; the joint venture entity is owned 60% by SBI Holdings, and 40% of TradeFinex
• "Know-Your-Business" (KYB) service provider SimpleForm was founded in October 2020, and allows access to information on more than 5 million entities nationwide instantly; Resona Bank is the latest addition to its client list that already includes many major banking, insurance and brokerage groups

Insurance

• The Financial Services Agency (FSA) has issued business improvement orders against four major non-life insurance companies, namely Aioi Nissay Dowa General Insurance, Sompo Japan Insurance, Tokio Marine & Nichido Fire Insurance, and Mitsui Sumitomo Insurance for violations of the anti-monopoly and fair trade acts in setting commercial insurance premiums, as well as general management deficiencies

Payments

• Online banking fraud has reached an all-time high in Japan; although countermeasures have been implemented in coordination with victimized financial institutions, damage continues to expand; the number of cases for November 2023 reached 5,147 cases (left hand side, black), with approximately 8.01 billion yen in damages (right hand side, red), setting a new high watermark for both figures
• In related news, the FSA warns that a person calling himself a financial planner pretends to have been commissioned by the FSA, and visits individual's homes, requesting the completion of a questionnaire regarding their asset status
• Digital Garage and Resona Holdings agreed to reinforce the capital and business alliance formed in November 2022; in addition to strengthening their partnership in the payment business and next-generation Fintech business, the two companies will also begin collaboration in the startup investment and open innovation businesses
• Ho Chi Minh City Development Joint Stock Commercial?Bank?(HDBank), a commercial bank in Vietnam, and JCB International?have announced the launch of the HDBank JCB Ultimate Credit Card and the acceptance of JCB Cards in Vietnam; HDBank has also become the official acquiring bank of JCB

Capital Markets & Asset Management

• The latest installment of the "Trends in High-Speed Trading" by the Financial Services Agency has dropped just before the year-end
• Mizuho Americas is integrating the primary capital advisory services of Capstone Partners and the secondary liquidity solutions business of Greenhill Private Capital Advisory under a newly created Mizuho Private Capital Advisory platform, serving general partners (GPs) and limited partners (LPs) with a comprehensive set of solutions; on a combined basis, Capstone Partners and Greenhill have advised GP and LP commitments in excess of $460 billion in primary and secondary commitments
• Morgan Stanley expects to record its highest-ever income from Japan as bets on a shift in the nation’s monetary policy fuel a trading revival; the Bank of Japan’s (BOJ) steps towards loosening its grip on bond yields over recent quarters have helped enliven the fixed income market, Alberto Tamura, Chief Executive Officer of the Wall Street firm’s majority-owned joint venture with Mitsubishi UFJ Financial Group, said; if the central bank proceeds to scrap negative interest rates in place since 2016 it could spur even more client activity
• Cathie Wood buys Yahoo! JAPAN operator for first time in a year; Wood’s Ark Fintech Innovation ETF (ARKF) bought a total of about 1.71 million shares of LY Corporation, according to ARK Investment Management LLC’s daily trading data compiled by Bloomberg; Ark had been reducing its stake in the stock for four-straight quarters through September

Digital Assets

• Finschia is a blockchain network developed and operated by the Finschia Foundation and LINE NEXT, a blockchain subsidiary of LY Corporation that services the messaging app LINE with 196 million monthly active users worldwide; the most active service on the Finschia network is the global NFT platform DOSI; LINE NEXT recently secured a significant investment of $140 million, led by Crescendo Equity Partners backed by Peter Thiel; this funding aims to aggressively expand the Finschia network and the DOSI ecosystem
• The Osaka Digital Exchange (ODX) commenced operations of “START”, a proprietary trading system (PTS) for security tokens; the initial trading participants admitted to the platform are SBI SECURITIES and Daiwa Securities, with Nomura Securities expected to join by spring 2024, and SMBC Nikko Securities during 2024; In addition to START, ODX will continue to develop the equities PTS, which has already been in operation since June 2022
• Monex Group will acquire the majority stake of 3iQ Digital Holdings, a pioneer in crypto asset management in Canada; with it, Monex obtains key infrastructure such as the 3iQ Managed Account Platform (QMAP), the industry’s first-ever comprehensive suite of crypto hedge fund managed accounts, which will help accelerate Monex's pivot from a brokerage to an asset management company
• SBI Holdings plans to acquire up to 3m additional shares in Gumi, which could increase its holdings by up to 7.58%, therefore pushing its stake just beyond 30%; Gumi closed the year at JPY 443 on Friday, after reaching a low of JPY 356 on December 25, just before SBI's announcement; this compares to a price of JPY 708 per share when SBI acquired 22.45% of Gumi a year ago
• The Japan Cryptoasset Business Association (JCBA) strongly recommends legal amendments that would allow Limited Partnership Funds (LPS) to hold cryptoassets; this change is crucial for nurturing Japan's domestic Web3 startups and attracting more entrepreneurial talent; current regulations limit LPS from investing in crypto assets, constraining the growth potential of innovative Web3 businesses; by advocating for these legal adjustments, the JCBA aims to unlock new opportunities and support the thriving digital economy in Japan
• Mt. Gox appears to have started repaying some creditors after the defunct bitcoin exchange’s trustee?said last month?that it would repay creditors in cash shortly
• JETRO has published an interview with Yuya Yoshida, Founder & CEO of HARTi, the Japanese startup using NFTs and more to empower Artists, and a participants at JETRO's CES pavillion

The Last Word: Christmas Cake Conspiracy

Whether you fake safety tests since 1989, like Daihatsu allegedly did, or you mess up a thousand Christmas cakes, the penalty is the same: a bow and the display of some attrition.

High-end Takashimaya's pricey JPY 5,400 cakes were meant to be delivered frozen, but many arrived melted, lopsided or crumbled. Out of the 2,879 cakes sold, Takashimaya has received 1,207 complaints as of Tuesday from disgruntled customers, of which 807 cases of damage was confirmed, according to reporting by the Japan Times.

This indeed was the headline of the week. No mass murders, no school shootings, no kidnappings, no nothing. We are so blessed to be allowed to live in this country. Thank you for having us.

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.