Japan FinTech Observer #60

Welcome to the sixtieth edition of the Japan FinTech Observer. We have tons of earnings results on tap, the three mega banks have all come in. Quite a few deals as well, some out of necessity, some for international growth. Plus a list of curated high-quality documents covering the FinTech ecosystem, digital assets, and recent regulatory changes. If this helps your work, please share this post to help us!

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Vertex Ventures Japan (“VVJ”), has launched its JPY 10bn inaugural fund; Japan’s Mizuho Financial Group has held talks to pick up a stake in InCred Finance by buying a part of KKR’s stake; UNLEASH Capital Partners announces its first investments in AyeKart Fintech and CredRight Finance; Global Brain and Yamato Holdings have jointly established “KURONEKO Innovation Fund II” (KIF II) with a JPY 8bn fund size
• Insurance: Nippon Life Insurance has reached an agreement with Corebridge Financial and its parent company, American International Group to acquire a 20% equity interest in Corebridge; LifeNet released full-year results for FY3/2024
• Banking: Daiwa Securities is acquiring 15.38% of troubles Aozora Bank for JPY 51.9bn; Moneythor has been selected by?Chiba Bank; full year results for FY3/2024 from GMO Aozora Net Bank, Sony Financial Services, Mizuho, MUFG, and SMBC
• Payments: Apple launched “Tap to Pay” on iPhone for contactless payments in Japan; NTT DOCOMO has announced changes to its point program, “d Point Club,” to capitalize on the growing popularity of point services and the rapid expansion of the mobile payment market; 7-Eleven in the US has?expanded its partnership?with ATM solution provider FCTI; Rakuten has published Q1/2024 results, including a profitable FinTech segment
• Capital Markets & Asset Management: Japan Post Insurance will acquire 20% of Daiwa Asset Management’s shares; MUFG will establish an investment facility to support emerging asset managers
• Digital Assets: The Digital Currency Forum’s Regional Currency Subcommittee has executed a verification experiment focused on implementing a tourist pass using token; Gaming-centric blockchain platform Oasys has announced a significant enhancement in its integration with SBINFT Market; the city of Gifu in central Japan is using the metaverse to allow people to virtually visit part of Gifu Castle
• The Last Word: AI Guidelines for Business

The IMF has published a technical note providing an in-depth analysis of Japan’s FinTech sector, focusing on its regulatory framework, supervisory practices, and systemic risk monitoring

FinTech in Japan: A Slow Start with Recent Growth

While Japan boasts a sophisticated financial system, FinTech adoption has been relatively slow compared to its regional peers. Despite this, recent years have witnessed notable growth, particularly in the digital payments sector. Although cash and credit cards remain prevalent, the use of QR code and smartphone app payments facilitated by Funds Transfer Service Providers (FTSPs) and Prepaid Payment Instrument Issuers (PPIIs) has surged, spurred by government initiatives promoting cashless transactions.

The banking sector is also gradually embracing digital transformation, with increased use of open banking and a rise in digital banks, albeit their presence remains relatively modest.

Japan’s crypto market, a pioneer in the early days of crypto activity, experienced a setback after security breaches in 2014 and 2018. Despite this, its regulatory framework for crypto assets is relatively mature, boasting a long track record of licensing and supervising crypto exchanges. Recent trends indicate a resurgence in crypto adoption, placing Japan among the top 20 countries globally. However, the domestic trading volume remains low, potentially due to stricter regulatory requirements.

Tokenization is emerging but remains limited, primarily focused on real estate trust fund units and corporate bonds. InsurTech is in its nascent stages, with minimal FinTech-related initiatives.

Venture Capital & Private Markets

• Vertex Ventures Japan (“VVJ”), has launched its JPY 10bn inaugural fund, Vertex Ventures Japan Fund I (“VVJFI”), anchored by Vertex Holdings; VVJFI will focus on investing in leading Japanese startups with high growth potential that have resilient underlying growth drivers, led by talented management teams and will continue to leverage Vertex’s global network of venture capital funds; Vertex will work with the University of Tokyo and the UTokyo IPC in the field of startup investment, and the three parties will promote human resource development and research cooperation to develop the startup ecosystems of Japan and Singapore
• Japan’s Mizuho Financial Group has held talks to pick up a stake in InCred Finance by buying a part of KKR’s stake in the financial services unicorn at a premium to its last valuation of $1.2 billion, the Economic Times reported
• UNLEASH Capital Partners, a recently launched venture capital fund with 30+ Japanese LP investors focused on driving financial inclusion in India, announces its first investments in AyeKart Fintech and CredRight Finance
• Global Brain and Yamato Holdings have jointly established “KURONEKO Innovation Fund II” (KIF II); the “KURONEKO Innovation Fund” (fund size: JPY 5 billion, hereafter “KIF”) was established in April 2020 to create growth models in logistics and related markets and drive open innovation, investing in 14 Japanese and overseas startups with promising technologies and business models that demonstrate potential for collaboration with Yamato Holdings and its group companies and growth in their business fields; as KIF has reached its investment limit, the partners have established KIF II and increased the fund size to JPY 8 billion

Insurance

• Nippon Life Insurance has reached an agreement with Corebridge Financial and its parent company, American International Group to acquire a 20% equity interest in Corebridge ; Nippon Life establishes a strategic partnership with these two companies through this acquisition to further enhance the value of Corebridge; the acquisition amount is expected to be approximately USD 3.84bn (approximately JPY 595bn), which will be funded by cash on hand; the transaction is subject to procedures related to regulatory approval as well as notification of the relevant authorities in relation to the acquisition
• LifeNet released full-year results for FY3/2024

Banking

• While the news coming out of the mothership Aozora Bank (see next point) was not too great, digital bank GMO Aozora Net Bank, of which Aozora holds 50% equity, had a terrific year, near-doubling revenue from JPY 2.8bn in FY2022 to JPY 5.1bn in FY2023, with a target of JPY 8.9bn in FY2024
• Aozora Bank and Daiwa Securities will form a capital and business alliance to achieve sustainable growth in their corporate value through creating new added value by combining Daiwa Securities Group’s “Wealth Management Business Model” and Aozora Bank Group’s “Strategic Investments Business”; Daiwa Securities Group will underwrite a third party allotment of new shares to be implemented by Aozora Bank, and will acquire 21,500,000 common shares of Aozora Bank, equivalent to 15.38% of the total of outstanding shares as of March 31, 2024 and newly issued shares through the Third Party Allotment; the total amount of capital contributed is JPY 51.9bn

• Sony reported full-year earnings this week, including the financial services segment , which is scheduled for a partial spin-off in October 2025; the new medium-term plan, covering the next three fiscal years, has therefore been prepared without the financial services segment, which will provide a detailed update at the segment days scheduled for later this month
• Sumitomo Mitsui Financial Group released full-year results for FY3/2024
• Mitsubishi UFJ Financial Group released full-year results for FY3/2024
• Mizuho Financial Group released full-year results for FY3/2024
• Moneythor, provider of real-time, personalized engagement and loyalty solutions for banks and fintech firms has been selected by?Chiba Bank , one of the leading regional banks in Japan, to bring real-time personalised experiences to its customers and enhance customer engagement

Payments

• Rakuten released Q1/2024 results, including a profitable FinTech segment
• Apple launched “Tap to Pay” on iPhone for contactless payments in Japan , giving merchants large and small an easy and secure way to accept contactless credit and debit cards, Apple Pay, and other digital wallets using just their iPhone; Tap to Pay on iPhone works seamlessly with a partner-integrated iOS app — no additional hardware or payment terminal is required; GMO Financial Gate’s stera tap app, Recruit’s AirPay Touch app, and Square’s Square POS app are among the first payment platforms in Japan to offer Tap to Pay on iPhone to merchants
• NTT DOCOMO has announced changes to its point program, “d Point Club,” aimed at enhancing user benefits and providing a more rewarding experience for its customers; these revisions will be implemented in stages, starting from October 2024, and are designed to capitalize on the growing popularity of point services and the rapid expansion of the mobile payment market
• 7-Eleven in the US has?expanded its partnership?with ATM solution provider FCTI, adding services to 3,000 of its Speedway locations; the two companies will be testing several new financial services , “including automated store deposits, cryptocurrency purchases and redemptions as well as a number of other cash in and cash out services” like prepaid reloads and online betting redemptions

Capital Markets & Asset Management

• Japan Post Insurance, Daiwa Securities Group, and Daiwa Securities Group’s consolidated subsidiary, Daiwa Asset Management, have agreed to enter into a capital and business alliance; under the Alliance, Japan Post Insurance will underwrite a third-party allotment capital increase by Daiwa Asset Management, and will acquire 20% of Daiwa Asset Management’s shares after the capital increase
• Mitsubishi UFJ Financial Group (MUFG), Mitsubishi UFJ Trust and Banking (MUTB), and Mitsubishi UFJ Asset Management (MUAM) have decided to establish an investment facility to support emerging asset managers , in addition to the introduction of their new training program for aspiring investment professionals under the Emerging Managers Program announced earlier this year
• The Financial Services Agency has published an English translation of the explanatory material of the bill to partially amend the Financial Instruments and Exchange Act and the Act on Investment Trusts and Investment Corporations; this was submitted on March 15, 2024, and enacted on May 15, 2024

Digital Assets

• Go Masuda at Blockchain Hub has compiled a Digital Securities Landscape for Japan
• The Digital Currency Forum’s Regional Currency Subcommittee, including Panasonic, SocioFuture, au Financial, TIS, and Decurret DCP has executed a verification experiment focused on implementing a tourist pass using tokens, which allows users to ride trains and buses within a certain area at a fixed price; the verification also assessed the automation of complex administrative tasks using DCJPY’s smart contracts
• Gaming-centric blockchain platform Oasys has announced a significant enhancement in its integration with SBINFT Market , a leading NFT marketplace operated by SBINFT Corporation under Tokyo-based financial services giant SBI Group; the collaboration marks a substantial stride in strengthening Oasys’s footprint in the Japanese market
• The city of Gifu in central Japan is using the metaverse to allow people to virtually visit part of Gifu Castle during the era of the 16th century warlord Oda Nobunaga
• SBI Digital Asset Holdings has published a report on institutional adoption of digital assets
• The Linux Foundation Japan and the Hyperledger Foundation held a meetup as a side event to SusHi Tech, during which Daniela Barbosa, Executive Director at the Hyperledger Foundation, provided a comprehensive "State of Hyperledger" presentation

The Last Word: AI Guidelines for Business

Aiming to address the recent rapid changes in technology, including the dissemination of generative AI, the Ministry of Economy, Trade and Industry and the Japanese Ministry of Internal Affairs and Communications integrated and updated the existing related guidelines and compiled the AI Guidelines for Business Version 1.0 based on the results of repeated discussions with experts.

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 . Registrations for the Tokyo FinTech Meetup have moved to Luma.

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.