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Why Japanese fintech faces unique challenges

Fintech, in particular Japanese fintech, has become a popular destination for venture capital funds. Most of the world’s venture capital investment into fintech is concentrated in Japan, China, and the United States. Japan has always been at the forefront of new technologies. Despite this there are a number of unique challenges for Japanese companies to overcome

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The head of the Japanese fintech association discussed the many peculiarities of fintech the country during the conference UAFinTech 2019. Despite being associated with cutting edge tech Japanese society is often conservative and this has helped define the direction of the fintech industry in the country.

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Japan is one of the top 10 fintech countries in the world

The country has always been at the forefront of the latest technology. At the same time, Japanese people are quite conservative and prefer cash payments instead of new innovations on the market. This is one of the many peculiarities of doing business in Japan but it hasn’t negatively impacted the development of many sectors of the economy. Takeshi Kito, the head of the fintech association of Japan, spoke about this during the conference UAFinTech 2019, organized by the Ukrainian Association of Fintech and Innovative Companies.

Mr. Kito noted that Japan has a population of 126.15 million and added a few more interesting facts about the country:

  • 98.2% of residents have a bank account,
  • 79.8% of people have access to the Internet,
  • 64.7% are smartphone users,
  • 84% of the residents are using credit cards.

The Japanese people are very conservative. That’s why they still prefer cash payments instead of innovations and are slow to enter other markets when developing their business.

The share of cash payments in the country is more than 60%. In China, this figure is just over 50%, in France it is about 20%, in Germany it is just over 30%, in the USA it is slightly more than 20%, in Sweden, it is less than 10%. Surprisingly more than 50% of Japanese people keep a portion of their savings in cash.

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Despite this, the popularity of QR-payments is growing in Japan. In particular, a popular solution for payments by QR-codes is PayPay, created by the Japanese giant SoftBank together with the Indian payment provider Paytm.

Open banking will help empower Japanese fintech

In 2017, Japan officially started implementing the principles of open banking. Since then, 90% of commercial banks (130 out of 138) have already opened or announced their intention to open their APIs to service providers by June 2020.

In 2017, a regulatory sandbox was created in Japan to help startups create innovative technologies. It is open to both Japanese and foreign companies, and not only financial institutions. The team includes 8 representatives of the Secretariat of the Cabinet of Ministers of Japan and the Committee for Innovative Entrepreneurship. According to the 2-years work results, the regulatory sandbox received 150 requests, 60 applications were submitted, 47 are in the stage of discussion with ministers, and 13 projects were approved.

Capital management and payments are the most popular startup categories

Who is investing in startups:

  • corporations (43%),
  • venture capitalists (34%),
  • financial institutions (10%),
  • businessmen(7%),
  • others (6%).

The average investment per corporation in 2018 was $1.5 million and $0.8 million in 2017.

Top 10 Japanese most funded financial start-ups:

  • FOLIO – capital management technologies. $69,6 million investments.
  • Freee – accounting software. $65,0 million investments.
  • Finatext HD – database management. $60,0 million investments.
  • Paidly – payments. $58,9 million investments.
  • Money Design – capital management technologies. $67,0 million investments.
  • Wealth Navi – capital management technologies. $32,3 million investments.
  • Origami – payments. $26,7 million investments.
  • BASE – payments. $25,3 million investments.
  • Liquid – authentication. $23,3 million investments.
  • One Tap BUY – capital management technologies. $21,3 million investments.

The National Bank of Ukraine also announced its plans to open a financial sandbox last year. The project is aimed at understanding the needs of the market, including regulation.

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During the UAFinTech 2019 conference, a memorandum of cooperation was signed between the head of the Ukrainian Association of Fintech and Innovative Companies Rostislav Duke and the head of the Japanese Fintech Association Takeshi Kito.

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(Featured image by StartupStockPhotos via Pixabay)

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First published in PA7SPACE, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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Olivia McCall is passionate about education, women and children’s rights, and the environment. A long-time investor, she covers news about the latest stocks (lately marijuana and tech), IPOs and indices, and is always on the lookout for socially responsible startups. She also writes about the food sector, and has a keen interest on cryptocurrencies.