Japan FinTech Observer #54

Welcome to the fifty-fourth edition of the Japan FinTech Observer. Cherry blossoms, finally!

The start of the new fiscal year certainly did not disappoint: Japan's first deposit-backed stablecoin has been issued by a regional bank, the cashless payment ratio has almost reached the government's 2025 goal, Rakuten is trying to sweat its FinTech assets further, and MUFG has published basic information on its next three year-plan, among others. And would you have thought that security token issuance in FY2023 reached already 16% of annual issuance in the Japanese stock market?

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Sumitomo Mitsui Card invests in ELESTYLE, known for its "OneQR" service that supports 40 payment operators; Infcurion has raised a total of 1.9 billion yen and will also enter into a capital and business alliance with Hokkoku Financial Holdings and the JR West Group in the FinTech field; Nomura's Laser Digital participated in XION's USD 25m raise; AI-powered Web3Firewall has closed a $2.5 million pre-seed funding round led by Nomura-backed Laser Digital, gumi Cryptos Capital; Infinity Ventures Crypto participates in Camp Network's USD 4m funding round; Suzuki has invested in BNPL provider Bumper through Suzuki’s corporate venture capital fund, Suzuki Global Ventures; SBI Holdings has made an additional investment in Solaris, one of Europe's leading embedded finance companies
• Insurance: the Financial Services Agency has granted a non-life insurance business license to NTT Docomo General Insurance
• Banking: MUFG has established a new Medium-Term Business Plan for the three-year period beginning in FY2024; Rakuten has announced a "reorganization" of its FinTech businesses; SEGA XD, a company developing gamification businesses, and Mizuho Innovation Frontier, the corporate venture capital of Mizuho, have agreed to develop and provide an app to advance financial literacy for parents and children; Sony Bank & ANA provide tax-efficient foreign currency deposits; Sumitomo Mitsui Financial Group has decided to reorganize SMBC Consumer Finance as a wholly-owned subsidiary of Sumitomo Mitsui Card Company
• Payments: The Ministry of Economy, Trade and Industry has declared the cashless payments ratio for 2023 to be 39.3%; Hokkoku Bank, together with the City of Suzu, Kono Shinkin Bank and Digital Platformer, has launched a deposit-backed stablecoin using blockchain technology; Sony Bank has initiated a trial to issue its own stablecoin pegged to the Japanese yen; Bank of Japan joins BIS' Project?Agorá to investigate how tokenized commercial bank deposits can be seamlessly integrated with tokenised wholesale central bank money;
• Capital Markets & Asset Management: Jefferies and SMBC have expanded their global strategic alliance to Canada; the current status of the carbon credit market in Japan; Fiera Capital has hired a head of Japan
• Digital Assets: BOOSTRY has started providing the “E-Wallet SaaS” web service for security token distributors; BOOSTRY also tallied up the accomplishments of the security token market over the past year; Hakuhodo Key3 has supported the launch of “Meta-Mazda" on Astar Network; Slash Fintech Limited has been selected to participate in the Uniswap-Arbitrum Grant Program; Animoca Brands started selling De: Centralized Cat (sic!) NFTs on the Coincheck NFT marketplace
• The Last Word: Labor Market Pressures

Venture Capital & Private Markets

• ELESTYLE has completed a third-party allotment capital increase, including additional investments from Sumitomo Mitsui Card and its existing shareholder Susquehanna International Group (SAI Global Japan Fund II, hereinafter referred to as “SIG”); ELESTYLE's "OneQR" is an innovative service that enables everything from self-ordering to cashless payments with a single QR code, supporting over 40 payment services, including PayPay, d-Barai, auPAY, and Rakuten Pay
• Infcurion has raised a total of 1.9 billion yen through a third-party allotment of shares to QR Investment, JR West Innovations, Shizuoka Capital, and S Ventures, as well as loans from financial institutions such as Japan Finance Corporation and Shizuoka Bank; in conjunction with the investments from QR Investment and JR West Innovations, Infcurion will also enter into a capital and business alliance with Hokkoku Financial Holdings and the JR West Group in the FinTech field
• Nomura's Laser Digital participated in XION's USD 25m raise ; XION’s?Generalized Abstraction?is an all-encompassing infrastructure solution aimed at removing all inherent complexities; XION is the first blockchain enabling developers to build, launch, and scale consumer-ready Web3 products from the ground up; it is also the first blockchain to integrate Circle 's USDC – a fully-reserved digital dollar – as its primary transactional currency, providing predictable pricing across all interactions within its ecosystem for consumers
• AI-powered Web3Firewall has closed a $2.5 million pre-seed funding round led by Nomura-backed Laser Digital, gumi Cryptos Capital , and others; Web3Firewall is an enterprise-grade security and compliance platform, detecting and responding to malicious transactions and AML/KYC threats before they occur
• Infinity Ventures Crypto participates in Camp Network's USD 4m funding round; the new capital will be used to support the network as it approaches mainnet launch and accelerate the growth of over 25 teams already building in the Camp Network ecosystem
• Suzuki has invested in Bumper through Suzuki’s corporate venture capital fund, Suzuki Global Ventures ; Bumper provides Buy Now Pay Later services for car repairs and services in the UK, Ireland, Germany, Netherlands, and Spain
• SBI Holdings has made an additional investment in Solaris , which provides banking functions to partner companies in Europe through embedded finance; Solaris SE will raise a total of EUR 96m (approximately JPY 15.7bn) through this financing, of which EUR 79m (approximately JPY 13bn) will be invested by SBI Group as lead investor; the majority of the funds will be used to acquire ADAC's (Germany's AAA) credit card operation

Insurance

• The Financial Services Agency has granted a non-life insurance business license to NTT Docomo General Insurance ; in October 2023, NTT Docomo announced that it would establish NTT Docomo General Insurance in Nago City, Okinawa Prefecture, as a new reinsurance company; NTT Docomo General Insurance plans to develop a reinsurance business related to the compensation services “Mobile Phone Protection Service” and “Smart Anshin Insurance"

Banking

• MUFG has established a new Medium-Term Business Plan for the three-year period beginning in FY2024; the three pillars of the MTBP are as follows:(I) expand & refine growth strategies, (II) drive social & environmental progress, and (III) accelerate transformation & innovation; with regards to the first point, in the four quadrants of the chart above seven strategies have been formulated to achieve growth during the new MTBP period; as a financial target, MUFG aim to increase their ROE to approximately 9% in FY2026 (compared to 7.5% in the MTBP that just ended)
• Rakuten has announced a "reorganization" of its FinTech businesses , where Rakuten Bank is the only publicly listed company currently; a reorganization without raising additional funds in the face of towering debt incurred with the mobile phone buildout would be moot; so there is more to come beyond the current announcement: "We are considering integrating the entire FinTech businesses including Rakuten Bank, Rakuten Card, Rakuten Securities, Rakuten Insurance, and other FinTech businesses into one group. Even after the Reorganization, Rakuten Bank will continue to be an important consolidated subsidiary of Rakuten Group and the FinTech Business will continue to be the core business segment in the entire Rakuten group."
• SEGA XD, a company developing gamification businesses, and Mizuho Innovation Frontier, the corporate venture capital of Mizuho, have agreed to develop and provide an app to advance financial literacy for parents and children ; to this end, they have established a joint venture company, Mizuho Pochette (ownership structure: Mizuho Innovation Frontier: 59%, SEGA XD: 34%, others: 7%)
• Tax-efficient foreign currency deposits with Sony Bank & ANA : receive miles instead of interest
• Sumitomo Mitsui Financial Group has decided to reorganize SMBC Consumer Finance as a wholly-owned subsidiary of Sumitomo Mitsui Card Company ; the reorganization is scheduled to be implemented in the second half of fiscal year 2024, subject to applicable laws and regulations, and on the condition that any necessary procedures required by laws and regulations are completed

Payments

• The Ministry of Economy, Trade and Industry has declared the cashless payments ratio for 2023 to be 39.3%, getting tantalizingly close to the government target of 40% by 2025 cashless payments were 126.7 trillion yen, of which (I) 83.5% or 105.7 trillion yen were credit card transactions, (II) 2.9% or 3.7 trillion yen debit card transactions, (III) 5.1% or 6.4 trillion yen electronic money, and (IV) 8.6% or 10.9 trillion yen qr code payments
• As announced in April 2023, Hokkoku Bank, together with the City of Suzu, Kono Shinkin Bank and Digital Platformer, has launched a deposit-backed stablecoin using blockchain technology in Suzu City, Ishikawa Prefecture, with the aim of increasing productivity through digitization and cashless payments; the settlement fee for the “Suzu Tochika” is set at a mere 0.5%; the blockchain technology platform used for recording and managing payment data in this project is Digital Platformer’s digital currency and decentralized ID issuance platform “SHIKI”
• Sony Bank has initiated a trial to issue its own stablecoin pegged to the Japanese yen ; this pioneering endeavor is set to unfold on the Polygon Labs blockchain; Sony's stablecoin venture is being overseen by SettleMint; Sony last year announced that it would spin off its Sony Financial subsidiary, although it plans to remain a minority shareholder
• Bank of Japan joins BIS' Project?Agorá: the project builds on the unified ledger concept?proposed?by the BIS and will investigate how tokenized commercial bank deposits can be seamlessly integrated with tokenised wholesale central bank money in a public-private programmable core financial platform; this could enhance the functioning of the monetary system and provide new solutions using smart contracts and programmability, while maintaining?its two-tier structure
• The Financial Services Agency has revised the "Frequently Asked Questions Regarding?'Guidelines for Anti-Money?Laundering and?Combating the Financing of Terrorism' " in order to serve financial institutions' efforts to enhance effectiveness of their AML/CFT framework; the FAQs were originally issued in March 2021, and last revised in August 2022

Capital Markets & Asset Management

• Jefferies and SMBC have expanded their global strategic alliance to enhance collaboration on future corporate and investment banking business opportunities within the Canadian market; in December 2023, Jefferies announced that it established full-service investment banking and capital markets capabilities in Canada; Jefferies will now align its extensive industry, M&A, leveraged finance and equity capital markets knowledge in Canada with SMBC Group’s deep banking and debt capital markets expertise and strong balance sheet to support and serve clients
• Current status of the carbon credit market in Japan : the Japanese government has set goals of achieving carbon net zero by 2050 and reducing greenhouse gas (GHG) emissions by 46% compared to 2013 levels by 2030; however, with only six years remaining until 2030, time is running out; carbon pricing, which puts a price on GHG emissions, is considered an effective way to promote GHG emission reductions at both the government and private sector levels; various measures have been introduced as part of this effort, such as the GX League and the issuance of GX economic transition bonds
• Fiera Capital has hired a head of Japan to expand its institutional distribution in the country, with private credit a key focus; the Canadian asset manager has appointed CJ Morrell to the newly created role of managing director, head of Japan; the firm, which has over $122bn of assets under management, said that the appointment will help it to increase its strategic focus on the Japanese market during a period of comprehensive economic reform in the country
• The FSA has published a presentation given by the Vice Minister for International Affairs, titled "Japan as a leading asset management center "

Digital Assets

• BOOSTRY has started providing the “E-Wallet SaaS” web service , which is equipped with functions necessary for managing security tokens (STs) when financial institutions (mainly securities companies and banks) sell STs to their customers; this service is already being used by Mitsui & Co. Digital Asset Management, with additional implementation projects underway at several other financial institutions
• BOOSTRY also tallied up the accomplishments of the security token market in Japan during the past fiscal year; the total issuance amount of security tokens in Japan in FY2023 was JPY 97.6 billion, a 5.8x increase from the previous year; this represents 16% of annual issuance in the Japanese stock market and 31% of annual issuance in the listed REIT market, making it a significant portion of the capital markets
• Hakuhodo Key3 has supported the launch of “Meta-Mazda,” Mazda Motor Corporation’s first digital art collection; in collaboration with the winning team “MAZDA Driver Identity” from the web3 Global Hackathon 2023 held with Mazda at the end of last year, Hakuhodo Key3 co-developed this project; the digital art can be purchased in limited quantity and for a limited time through the capsule toy campaign “Yoki Origins” offered by the Japanese public blockchain Astar Network
• Slash Fintech Limited has been selected to participate in the Uniswap-Arbitrum Grant Program, a 6-month program fueling projects of two leading ecosystems; Slash Payment started supporting Arbitrum in November 2023 , and has been promoting ecosystem collaboration; in this case, 10,000 ARB has been allocated as a grant for the purpose of promoting business development in Asian markets such as Japan and South Korea
• Animoca Brands started selling 300 units of De: Centralized Cat (D:CC) NFTs on the Coincheck NFT marketplace at a floor price of 0.006 ETH; notably, the D: CC NFTs are usable on the Nine Chronicles M blockchain game operated by Planetarium Labs and is available in over 150 countries
• The inception of AsiaNext : AsiaNext was established in 2021 – a joint venture between Japan’s SBI Digital Asset Holdings and SIX Group AG of Switzerland, to meet the increasing institutional appetite for access to digital assets through a safe and secure venue

The Last Word: Labor Market Pressures

The suffering is real. Stepping into three of our favorite eateries late on a Saturday evening, without reservation, we were politely shown the door, although there were about two operating hours left, and open tables could be spotted. At the same time, however, one poor gent in a sake bar apparently flew solo, and in other places piles of used dishes were visible, with the staff unable to keep up with all the serving & cleaning.

The choice is stark, the Nikkei even went as far as suggesting today that businesses will be forced to change how they work. Ouch! That is much more difficult for those small eateries mentioned, of course, whereas the larger chains have started deploying serving robots.

But at the macroeconomic level, we have long argued that immigration would be the wrong choice, relieving the pressure from the "we have always done it this way" faction, and forestalling meaningful change in business practices. Japan's productivity, in particular in the services sector, is not competitive globally.

Now, the smart people at MUFG Research & Consulting have put some numbers behind this, according to an article in the Nikkei:

"Higher labor productivity, job mobility, and?foreign participation in the labor force?could help Japanese companies cope. MUFG Research & Consulting estimates that in 2035 Japan will be nearly 8 million workers short of the level needed for real gross domestic product to match the economy's potential growth rate of 0.5% per year.

It estimates that an annual increase of 1 percentage point in labor productivity would make up about 70% of the shortfall. Productivity must rise?about 20% compared with 2021. Artificial intelligence and other tools could help companies work more efficiently, freeing up employees for research and development and other value-creating tasks."

For many familiar with the Japanese service industry, 20% seems a low bar. Digitize, digitalize, automate. Rinse & repeat.

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.