The Fintech World Series: Japan

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Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
Often considered a laggard in its adoption of fintech, Japan’s strong economy and history of technological advancement is finally being matched by the government’s growing interest in the rise of its fintech sector.

Japan-FWS-infographicAs the second most expensive city in the world, Japan is known for many large numbers. Not only is it made up of around 6,852 islands, this packed country houses over 126 million citizens. It’s no surprise that its capital houses 35 million people; the greater Tokyo area is the largest metropolitan area globally. Whilst Japan’s population has the largest proportion of elderly people in the world (21%), it can (ironically) be characterised as one of the most innovative places for ‘new’ technologies: their trains have average delays of around 18 seconds (an engineering marvel), and the whole world knows that Japan is responsible for some groundbreaking gaming companies, namely Nintendo and Sega, masterminds that have dreamt up such delights as Super Mario Bros, Sonic the Hedgehog and Pokémon, with the latter’s latest success in cultural phenomena being Pokémon Go, a game that has influenced every industry’s views and adoption of augmented reality. Hyper-reality is a common theme in Japanese culture: manga comics (the Japanese used more paper for this medium than for toilet paper), anime and film-making (Studio Ghibli being a class act) really displays the country’s imaginative forms of storytelling and electronic expertise. Plus, the Japanese brought us Takeshi’s Castle.
Yet, for all of Japan’s phenomenal world-leading technological advancement (it ranked 6th in Bloomberg’s Innovation Index this year) it is its financial technology sector that has remained fairly dormant with Japan’s neighbours taking the fintech reins early on.

Bank to Basics

One of the biggest influencers on the lack of affinity with fintech is the fact that the Japanese are still very much fans of bank branches. In 2013, as Reuters notes, the number of commercial branches per 1000 square kilometers in the country was 103. This statistic places Japan as one of the highest in the world for its amount of physical bank branches, certainly the most in Asia with many countries still remaining unbanked or underbanked. Digital banking is therefore not part of the financial psyche in Japan, and there are a few examples displaying why.
Firstly, whilst many of the fintech forerunners in the world are showing increased teamwork between traditional banks and digital disruptors, three megabanks in Japan (Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corporation and Mizuho) only introduced a one-time password system for its online banking users in the last two years. Elsewhere, the popular Japan Post Bank represents an old-school financial body, which works independently of the government’s own efforts to reform the financial sector and, run by the Japanese Bankers Association, the Zengin System is a clearing network still used by many Japanese companies to wire salaries to their employees.
As stated by Toshio Taki, who has a number of roles within fintech in Japan (co-founder of Money Forward, advisor to Japan’s Financial Services Agency, head of FinTech Institute of Japan), companies and individuals alike are clearly not too enamoured by digital finance just yet. He states that there is even a cultural stigma surrounding the idea of ‘debt’ which is highlighted by the limited number of Japanese credit card users. ATMs are mostly free in Japan too, with cash remaining the preferred choice of currency; even the shunning of digital efforts is outlined in a lack of cloud-based accounting software. These are certainly areas that Taki’s Money Forward (and other fintechs) are attempting to transfer to digital, but we’ll come to those startups later.
Evidently there’s a cumbersome attitude towards digital finance, but Japan’s actual efforts from industry players, regulators, the government and even the large banks have gone massively understated, dwarfed by Japan’s neighbouring economies such as China, Hong Kong, South Korea or Singapore.

The Rising Sun of Fintech

Now seems to be the time whereby Japan is leveraging its status as the world’s third largest economy to develop its fintech services through a more sustainable and scalable environment for innovation. Deloitte’s rundown of global fintech hubs names Tokyo as the 5th Global Financial Centre, with a Global Innovation Index score of 16 – clearly the fairly abject opinion of Japan’s fintech status is unfounded. It’s taken a little longer than others to get going with financial technology due to the points brought up before, but regulators are beginning to relax laws to best advance the fintech space, whilst the Fintech Association of Japan (FAJ) is placing pressure on banks to more readily fund fintech startups.
The Fintech Association of Japan, as of 2017, has a membership of 72 members, and is just one outfit pursuing the furthered status of fintech companies within Japan’s financial ecosystem, featured here:

  • Founded in January 2016 was FINOLAB. It comprises 38 partner companies and is a joint project of Mitsubishi Estate, Dentsu and ISID. Mentors at the accelerator are called FINOVATORS.
  • Blockchain Collaborative Consortium (BCCC) was founded in April 2016 and has 134 participating companies to look into ways for blockchain technology to be used by financial institutions.
  • The Japan Blockchain Association (JBA) was also founded in April 2016.

Yet as well as these fintech-focused organisations, other institutions are doing their bit to help out too, like these financial heavyweights…

  • Mitsubishi UFJ: Established its own Digital Accelerator program in 2015, which lasts for 4 months to support commercialisation for startups. The Mitsubishi UFJ Financial Group also launched a fintech unit with 32 banks nationwide and invested ¥3 billion into Japan Digital Design Inc. for the development of AI, blockchain usage and cashless mobile services.
  • Mizuho Financial Group: Held ‘Mizuho.hack’ in 2016 with Mizuho Bank, a hackathon to support open innovation. Its theme revolved around finding new banking services featuring Pepper the robot, used at many Mizuho bank branches. Mizuho also launched SMART FOLIO, a robo-advisory service that was a first for Japanese banks.
  • Hitachi: This Japanese conglomerate set up two California-based innovation centres. In 2015, the Global Centre for Social Innovation was established in Santa Clara, followed by a fintech innovation lab and R&D centre in Silicon Valley in 2016.
  • Fujitsu: Hosted a consortium called Financial Innovation SQUARE, which plans meetups between fintech companies and financial institutions.
  • IBM: The Japanese branch of the tech company has supported financial institutions to open API and runs its own incubation program, ‘IBM Bluehub’.
  • Sumitomo Mitsui Financial Group plans to invest ¥20 billion in fintech before 2022.

…as well as…

  • Nomura Asset Management: Developed “Funds Robo” robo advisor in April 2016, as well as its “moneby” smartphone app to teach about investing. Nomura Bank also offers another robo-advisor service “Goal-Based” via Nomura Securities.

…plus the government, under the watchful eye of Japan’s Prime Minister Shinzo Abe…

  • Abe’s Cabinet developed the “Japan Revitalization Strategy 2016” in order to promote business development and regulation efforts. This (of course) features a lean on Japanese fintech.
  • Fintech has been considered as 1 of 5 strategic sectors for the government to boost in the coming years.
  • The “Council on Investments for the Future” was first held at the Prime Minister’s Office in September 2016, looking at growth strategies across many different industries.
  • There is an aim for over 80 banks to open their API within a 3 year timeframe.
  • Looking to raise cashless payment ratio to 40% in 10 years.

Abe’s governmental support is also furthered by the efforts of its Financial Services Agency (FSA), which has launched other initiatives and reforms. Here’s a little timeline of what’s been burgeoning the Japanese fintech landscape (with information found here):

  • March 2013: Revision of The Centre for Financial Industry Information Systems’ ‘FISC Security Guidelines on Computer Systems for Banking and Related Financial Institutions’. This was intended to spread the use of cloud computing.
  • December 2015: The FSA launched its ‘Fintech Support Desk’ to create a supportive environment for startups and to handle enquiries from the private sector.
  • May 2016: a reformation of the Banking Act made it easier for banks to invest in financial IT companies. Foreign banks wishing to engage in banking in Japan can now obtain a license and set up a single regional branch as a Japanese base.
  • May 2016: Amendment of the Payment Services Act allows for the further regulation of cryptocurrencies and the possibility to register foreign funds transfer service providers.
  • 13 March 2017 – The FSA and MAS (Singapore) announce framework for fintech links between companies.
  • 9 May 2017: The FSA and the UK’s FCA arrange for a regulatory referral system to enter each other’s market.
  • 9 June 2017: Cabinet approved the ‘Growth Strategy 2017’, comprising of a regulatory sandbox scheme to spur innovation in AI, big data, distributed ledger technology, drones and self-driving vehicles.
  • July 2017: Further Banking Act reform, increasing regulation on electronic banking settlement agency services and the support of Open API.
  • October 2017: Government approves Bitcoin to help grow fintech industry and issued 11 licenses to let companies operate as legal cryptocurrency exchanges in September.

As reported this year, the past 5 years has already seen a 40% increase in retail customers using computers or mobile devices, which starts to show the cherry blossoming of fintech. Despite Japan originally having more electronic toilet seats than personal computers, the drive from regulators, the government and banks is upping the usage of personal devices.
In one fascinating instance, Japan’s messaging app rival to world-famous WhatsApp and Facebook Messenger Line is already looking to get ahead in the cryptocurrency space, with the latest governmental embrace of the often-outlawed digital assets being highlighted above. With Japan becoming the first country to introduce cryptocurrency regulation, it has become the largest market for cryptocurrency trading, and as reported by City AM, Line has taken this opportunity to apply to the FSA to become a fully licensed virtual currency exchange. Given Line Pay’s usage by 200 million people across Japan, Taiwan, Thailand and Indonesia (and handling ¥450 billion worth of transactions), cryptocurrency trading (and the legitimacy thereof?) looks set to increase, particularly in Japan.
To finish this insight into Japanese fintech, ironically here are investors and startups looking to begin the new dawn of fintech in the Land of the Rising Sun:


Globis Capital Partners


From the KPMG Fintech 100 2017’s Emerging 50 list…
Moneytree – Japan’s number one financial data aggregation platform. Its first product – a personal finance app – consolidates bank accounts, credit cards, digital money and loyalty points into a mobile banking application. It has over 1,300,000 users on iOS, Android and online and Moneytree LINK has almost twenty enterprise clients. It was founded in 2012 by Ross Sharrott, Paul Chapman (CEO), Mark Makdad and Jonathan Epstein (Chairman) and is based in the capital, Tokyo.
…as well as these innovative services:
bitFlyer – Japan’s number one bitcoin exchange market by trading market, with its own proprietary blockchain format Chainflyer. Users and businesses can buy, sell, and spend bitcoins through a secure platform, and their site allows clients to control their accounts through an API interface. It is the only exchange in Japan that does official auditing. It was founded in January 2014 by Takafumi Komiyama and Yuzo Kano.
Freee – Accounting software particularly aimed at SMEs. It syncs with your bank accounts and segments entries to create financial reports, as well as tracking expenses, automating payroll, sending invoices and much more. Since its launch in 2013 it has over 500,000 registered businesses, and was founded by its CEO, Daisuke Sasaki, based in Tokyo.
Money Design – A robo-advisor for individuals, Money Design’s Theo application uses AI and algorithms once only available to professional investors. Now, users can invest in 35 world currencies and 11,900 different stocks from 65 countries. It charges an annual management fee of 1%, but users are able to stop at any time. The application automatically balances your account based on your investing goals. The company was founded in 2013 by Nao Kitazawa (COO) and is also based in Tokyo.
Money Forward – A personal financial management service, which also doubles as cloud-based accounting software. Users are able to report expenses, do payroll, collect payments and send invoices, as well as utilize Money Forward’s services for income tax assistance. It is currently used by 3.5 million individuals and around 500,000 businesses use its cloud software. It was founded in 2012 in Tokyo by Chihiro Asano, Toshio Taki and Yosuke Tsuji (CEO).
Even if some fintech commentators talk down, or even fully forget, the fintech actions that are occurring in Japan, it seems unrealistic to ignore its potential. Given Shinzo Abe’s clear vision to open up regulation for national and foreign banks, as well as the combined efforts of traditional institutions and newcomers to the financial scene, Japan is looking to remove the fixed bank-branch mindset to give financial freedom to the digitalised Japanese population.
If you have any thoughts about Japanese fintech, let us know in the comments below, or you can tweet us.

Elliot Burr

Elliot Burr

Fervently chatting about the future of funds and fintech.