Japan FinTech Observer #83

Welcome to the eighty-third edition of the Japan FinTech Observer.

Japan has voted. We are extremely happy that Tokyo-18, our district, sends two female representatives to the Diet, one through the direct mandate, the other through proportional representation. Their average age is under 50. Unfortunately, this is not representative of the country as a whole.

Regardless of whether a new coalition is formalized or a minority government supported, it is likely that additional interests need to be satisfied in the supplemental budget. Ishiba (who is flip-flopping on more issues than we can keep track of) previously talked about a supplemental budget greater than the last one, which would have exceeded market expectations already. So the fiscal situation will be fraught, as votes & support need to be secured to stabilize the incoming government, as well as with a view to the Upper House elections next year.

Do you remember super apps? Overall, it has been remarkable how little activity there has been, so we are delighted to see SBI Sumishin Net Bank launching mortgage applications on LINE, and PayPay bringing back its influenza insurance.

On the payments side, quite some reading from the Bank of Japan's CBDC Forum and the FSA-hosted Financial System Council’s “Working Group on Fund Settlement Systems”. Enjoy!

Here is what we are going to cover this week:

• Venture Capital & Private Markets: Gojo & Company has successfully completed their Series F fundraising at a reported USD 880m valuation
• Insurance: Protosure has deployed its no-code solution at Sompo Japan Insurance, with integration support from Toshiba; PayPay will offer influenza insurance again through a PayPay mini app
• Banking: Chiba Bank has launched a new suite of personalized banking features with Moneythor; SBI Sumishin Net Bank has launched mortgage applications on LINE; after stretching mortgage terms to 50 years, Rakuten Bank has lifted the limit from JPY 100m to 200m; SMBC expands its service for the elderly by onboarding seven new partners
• Payments: Japanese Yen stablecoin JPYC started joint research with Korea’s ITCEN; Progmat and Datachain have completed a patent application for an international remittance system; GHL and JCB have officially announced their strategic partnership for Malaysia, Thailand and the Philippines; the Bank of Japan's CBDC Forum has taken place, the first since January; minutes and/or meeting materials for the first three meetings of the Financial System Council’s “Working Group on Fund Settlement Systems”
• Capital Markets: Insider trading allegations at the Tokyo Stock Exchange; Asuene has acquired all shares of E4G; au Kabucom Securities is collaborating with Morgan Stanley MUFG Securities for smart order routing
• Asset Management: LUCA Japan has successfully completed registration for Type II Financial Instruments Business and Investment Advisory/Agency Business; Stefanie Drews, President of Nikko Asset Management Group, gave a keynote address during the recent “Frontiers of International Finance” Forum
• Digital Assets: Komainu announced an agreement in principle to acquire Singapore's Propine Holdings; Japan Open Chain's operator has entered into a strategic partnership and investment agreement with Bifrost; Japan's law enforcement agencies had used Monero transactions to identify criminals for the first time
• The Last Word: Green Finance

The Bank of Japan's Financial System Report

The Bank of Japan has issued its Financial System Report for October 2024, stating:

Since summer 2024, domestic and foreign financial markets have shown unstable developments, and there remain concerns over the possibility that geopolitical risks could generate large fluctuations in the real economy and financial markets. In Japan, some real estate indicators warrant attention with real estate-related loans continuing to increase.

While Japan's economy has recovered moderately, defaults have been increasing especially among firms whose profits have been improving only at a slow pace. This Report attempts to analyze the reasons behind the recent rise in default rates by focusing on vulnerabilities present since before the pandemic and the impact of rising raw material and labor costs.

After changing its monetary policy framework in March 2024, the Bank raised the policy interest rate in July. Against this background, banks have been setting loan and deposit interest rates, taking into account changes in market interest rates. This Report provides updates on the impact of changes in the interest rate environment on banks, households, and firms, based on certain assumptions.

Venture Capital & Private Markets

• Gojo & Company has successfully completed their Series F fundraising with paid-in capital since their establishment in July 2014 reaching JPY 46.5 billion (USD 325 million); Gojo also raised approximately JPY 15.9 billion in debt from six Japanese financial institutions including Sumitomo Mitsui Banking Corporation and Mizuho Bank; Gojo was selected as the first equity investment by crossover funds (mutual funds allowed to invest up to 15% of AUM into unlisted shares) launched by leading Japanese institutional investors

Outside of FinTech

• The Development Bank of Japan has made a venture investment in quantum computing hardware startup Qolab for $3.5 million, according to Nikkei; this would represent the first venture investment DBJ have made in a quantum computing startup based in the U.S
• Nomura SPARX Investment announced that an investment corporation managed by NSPI has acquired shares in Giftmall; Giftmall operates an e-commerce platform that connects buyers with specialized gifts, leveraging one of Japan's largest gift-related data repository; the company gathers and analyzes data on gift-related behavior from approximately 36 million online visitors each month
• MUFG Bank?and American conglomerate?Koch Group?have sought approval from the Competition Commission Of India to acquire minority stakes in Zomato-backed logistics services aggregator platform Shiprocket; the ecommerce enablement platform is finalising the close of a $75 million funding round led by Silicon Valley investor Tribe Capital in a mix of primary and secondary transactions

Insurance

• Sompo Japan Insurance, Toshiba Digital Solutions, and Protosure have developed and launched an insurance sales management system for corporate insurance products using Protosure’s insurance product development and sales platform, based on no-code technology
• PayPay Insurance, Z Financial Corporation, and PayPay announced that the Influenza Insurance is again on offer in the PayPay Insurance mini app within the cashless payment service PayPay; this Insurance was launched in January 2023 as the first product in Japan specifically designed for influenza, and has been well received by many users, with the total number of subscriptions exceeding 78,000

Banking

• Chiba Bank has launched a new suite of personalized banking features designed to help its customers take greater control of their finances and drive increased engagement; these advanced features, powered by Moneythor’s innovative all-in-one personalization engine, deliver tailored insights and financial recommendations within the banks “Chibagin App”
• In an industry first, SBI Sumishin Net Bank has opened an official LINE account that allows users to complete mortgage application procedures online via LINE; it will be possible to complete all procedures, such as applying for a home loan review and uploading required documents, on LINE
• In the face of ever rising real estate prices, Rakuten Bank has raised the upper limit of the loan amount for the “Rakuten Bank 50-Year Home Loan,” from 100 million yen to 200 million yen; the 50-year loan was launched in March 2024 to respond to changes in customers’ lifestyles and diverse needs for home loans, and to allow customers considering purchasing a home to consider a comfortable home loan repayment while reducing their monthly repayment amount
• Sumitomo Mitsui Banking Corporation will enhance its services for the “SMBC Elder Program,” which was launched in April 2021, effective November 1, 2024; since its launch, the program has been well-received by many customers; to further meet their customers’ diverse needs, SMBC has formed new partnerships with seven companies

Payments

• Japanese Yen stablecoin JPYC started joint research with Korea’s ITCEN: the two companies aim to further develop the stablecoin business by combining JPYC’s accumulated know-how in compliance with Japanese laws and regulations and blockchain technology with ITCEN’s RWA business, which is based on transparency and safety
• Progmat and Datachain have completed a patent application for an international remittance system using stablecoins in collaboration with the Swift system; both companies announced the cross-border stablecoin remittance infrastructure development project “Project Pax” on September 5, 2024; this patent application relates to the system currently under development in this project
• GHL Systems Berhad (GHL) and JCB International have officially announced their strategic partnership, enabling the acceptance of JCB Cards for GHL’s merchants in Malaysia, Thailand and the Philippines; this regional collaboration represents a significant step forward for both companies, aiming to empower merchants and shoppers across these regions with enhanced payment convenience
• KardoAI has officially launched in Japan, working closely with an established Japanese FinTech partner to provide enhanced transaction and rewards points tracking; this feature, set to be available in Q1 2025, will offer users a seamless way to monitor and maximize their credit card benefits
• Sam Pemberton Ahmed of Smartpay in a rare interview: "Weaving Empathy and Strategy into a FinTech Tapestry"; here is also our previous conversation with Sam about the launch of Smartpay

Regulatory Working Groups

• On October 17, 2024, the Bank of Japan held its Third CBDC Forum Plenary Meeting, the first since January; the meeting materials detail the future direction, progress of discussions in the CBDC forum's seven working groups, domestic and international trends, and future challenges
• The first meeting of the Financial System Council’s “Working Group on Fund Settlement Systems” was held on September 25, 2024; we had previously reported on the secretariat’s explanatory materials which outline the background, discussion points, and reference materials for the working group; the FSA has now released the official minutes from the meeting
• In addition, the second meeting of the Financial System Council’s “Working Group on Fund Settlement Systems” was held on October 17, 2024, and the third meeting on October 24, 2024; the former focused on aspects of the funds transfer business, while the latter took on advancement services and the participation of foreign financial institutions in syndicated loans

Capital Markets

• Insider trading allegations at the Tokyo Stock Exchange: "It has been reported by some media outlets today that the Securities and Exchange Surveillance Commission is investigating an employee of Tokyo Stock Exchange, a subsidiary of Japan Exchange Group, on suspicion of insider trading. We can confirm that an employee of Tokyo Stock Exchange is currently under investigation by the Securities and Exchange Surveillance Commission, and JPX Group will continue to make every effort in cooperating with this investigation."
• Asuene has acquired all shares of E4G, a startup spun out of the Tanaka Kenji Laboratory at the University of Tokyo Graduate School of Business that develops AI-based ESG data collection and analysis solutions and software to support the formulation of decarbonization roadmaps, making it a wholly owned subsidiary
• au Kabucom Securities is collaborating with Morgan Stanley MUFG Securities (MSMS) to utilize Morgan Stanley’s Japanese stock trading execution platform to expand its SOR (Smart Order Routing) service and provide trading execution algorithms from Monday, March 3, 2025; this will be the first time in Japan that the firm’s trading execution algorithms will be offered to individual customers

Asset Management

• LUCA Japan has successfully completed registration for Type II Financial Instruments Business and Investment Advisory/Agency Business; with this registration, LUCA plans to further reduce the minimum investment threshold from USD 100,000 to USD 10,000–50,000, and expand alternative investment opportunities to a broader range of investors
• Stefanie Drews, President of Nikko Asset Management Group, gave a keynote address during the recent “Frontiers of International Finance” Forum, hosted by Nikkei, during which she covered — among other topics — the opportunity that presents itself to Japanese companies through international partnerships, providing ample examples from Nikko AM

Digital Assets

• Komainu announced an agreement in principle to acquire Propine Holdings, the provider of digital asset custody and related services through Propine Technologies, a regulated digital asset custodian in Singapore, subject to approval by the Monetary Authority of Singapore; the acquisition significantly enhances Komainu’s presence in Singapore and provides a new regional hub for its custodial and digital asset servicing capabilities
• Japan Blockchain Infrastructure, which operates and manages the consortium for Japan Open Chain (JOC), a fully Ethereum-compatible public chain run by Japanese companies, has officially entered into a strategic partnership and investment agreement with Bifrost; this partnership aims to leverage cross-chain technology to expand blockchain networks and build an ecosystem that facilitates Web2 companies’ entry into the Web3 space
• Japanese authorities arrested a gang of 18 alleged scammers by analyzing about 900 of the group’s Monero-based money-laundering transactions, which totaled about 100 million yen ($670,000); Japanese authorities?told?local media outlet Nikkei that this marked the first time the country’s law enforcement agencies had used Monero transactions to identify criminals

The Last Word: Green Finance

As you will know if you have been following us for a while, we are tracking Z/Yen's Global Financial Centers Index (GFCI) closely, as it provides a thorough data-driven approach that cuts through the hyperbole of government institutions' marketing.

The following table compares the Top 20 in the GFCI (right column) to their positioning in the recently published Global Green Finance Index (GGFI, left column), with the two dimensions of the GGFI in the center.

It is notable that some leading financial centers perform less well than expected in the GGFI, considering their performance in the GFCI, which has been measuring financial center competitiveness since 2007. There is some disconnection between the highest performing centres in the GFCI and performance on green finance in the GGFI. In total, 12 centers feature in the top 20 in both measures with London, New York, Singapore, and Los Angeles featuring in the top 10 in both indices.

Tokyo, which has just retained a Top 20 ranking in the GFCI, comes in at a low 42nd in the GGFI. Overall, there appears to be a slight drop in confidence in the development of green finance in financial centers. In the last edition of the index, the average rating was up 4.21%, whereas in this edition the average rating is down 1.96% compared with GGFI 13, with only six centers improving their ratings.

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