Fintech Market in Japan Report - Preview

The Dawn of
FinTech Market
in Japan

© Crown copyright 2015 | Copyright © 2015 Accenture All rights reserved. 1
Table of Contents
Executive Summary 02-04
FinTech Market Overview in Japan 05-19
Major Areas of FinTech 20-21
Payment 22-37
Lending/Funding 38-49
Personal Finance 50-58
Tools for Customer Touchpoint 59-70
Security 71-84

Executive Summary (1/3)
With over USD 16 trillion worth of personal financial asset, Japan has the world’s 2nd largest financial market.
Japan has a thriving financial services industry including large players such as the “3 megabanks” (Mitsubishi
UFJ, SMBC and Mizuho banks). As a technology giant, it comes as a surprise that IT investments by Japanese
major financial groups have historically been smaller than their global counterparts. The IT expense ratio of the 3
megabanks stood at 2.5-3.5% of net income. The chiefs of these banks are acutely aware and are installing
teams to look at areas such as innovating their omni-channel banking service, utilisation of big-data and
improvement of security.
Belatedly from 2012, Japan is seeing birth of FinTech companies such as Money Forward which provides cloud-
based household accounting tool (now with 2 million users) and Freee, a cloud-based accounting software for
small businesses. Coupled with an emergence of a start-up ecosystem in Japan and the gradual proliferation of
the word, FinTech, 2014 saw an investment of GBP 36.6 million in FinTech start-ups (including non-Japanese)
with CAGR at 106%.
In response to the growing interest in FinTech, the Japanese government has been working on relaxation of its
legislation to enable its growth. The Japanese Financial Services Agency has started to discuss revisions to the
Banking Act and is planning to submit bills to the Diet (Parliament) in 2016 to enable banks establish IT
subsidiaries. Tokyo 2020 Olympics & Paralympics Games will also pose a challenge to improve Japan’s
infrastructure for cashless payment. The Governor of Tokyo is keen to revitalise Tokyo’s position as an
international financial market and FinTech will be an important component to his vision.

Executive Summary (2/3)
We see opportunities for further growth in FinTech in the following areas which UK companies may be well placed to
tap into:
1) Payment/Transfer
Japan has Asia’s 2nd largest e-commerce market but payment methods are fragmented but still with a strong
preference for cash. Modernisation of payment method will be an important theme, particularly with Tokyo 2020,
giving rise to opportunities in cashless payment such as using credit card and smartphone apps. Security
continues to be a big issue. The money transfer market has seen some new entrants following deregulation
and is poised for further competition.
2) Lending/funding
This market is still relatively small as equity type crowdfunding has not been possible but with revision of the
law this year, it is estimated to grow rapidly. However with the shortage of local expertise and experience,
foreign companies may be able to play a big role.
3) Personal finance
Japanese consumers have a lot of cash and assets. However Japan is relatively behind in terms of personal
financial maturity as there was little incentive to proactively manage funds in Japan’s unique deflationary
environment which is about to change. A few Japanese FinTech start-ups came into the market in 2012 with
services for household budget management and financial advisory services but at still on a small scale.

FinTech Market
Overview in Japan

Section Summary
Investment for FinTech
sees significant growth
Huge opportunity in the
financial market
Banks struggle to innovate
for further growth
Government to ease
existing regulations
Challenge in cultural
conservativeness
• At the same time, the Japanese financial market (and volume of personal financial
assets) is the 2nd largest among the OECD countries
• In addition, the Japanese financial market is in a unique situation whereby over 50% of
personal assets are composed of cash and deposited in banks
• Japanese financial institutions have historically invested less in IT than their peers in
the global market. However in recent trends, they recognise the lack in technology
innovation as needing further enhancement
• The shift is now towards FinTech technologies as a way to secure revenue
• Although relatively small compared to the UK and the U.S., many venture capitalists in
Japan and abroad have started to invest in FinTech ventures in Japan
• Investment volume in 2014 is £ 36.6 million with a significant growth of CAGR +106%
• Nevertheless, the real challenge may not only be to cope with the local language, but
also cultural conservativeness and resistance to change which is inherent in both
the Japanese financial institutions and personal consumers
• Partnering with Japanese companies may be a good way to overcome this hurdle
by leveraging local knowledge and insights rather than going at it alone
• Japan’s government is currently enhancing support for the FinTech industry through a
range of measures, such as relaxing regulations for FinTech investments by banks,
providing incentives for foreign enterprises, supporting IT development, and
promoting monetary liquidity and personal investments

Investment for FinTech sees significant growth
Rise of FinTech Ventures/ IT vendors
Recently, Japan has seen heavy investment in many FinTech ventures, including foreign companies. The industry
is currently at an early stage in Japan. The investment volume is still at a relatively small amount of £36.6 million,
but with a significant growth of CAGR +106%.
Investment into FinTech
companies in Japan
0.4
17.8
36.6
2012 2013 2014
(GBP Million)
CAGR
(‘13-’14):
106%
Examples of FinTech Companies
Invested in Japan (2014-2015)
Invested
FinTech
Company Nationality
Investment
Amount,
GBP M (Year) Investor Industry
freee Japan
9.4 (2014)
Doll Capital Management, Pavilion Capital
Partners, etc.
Accounting &
Finance
Money Forward Japan
8.5 (2014)
Credit Saison, Dentsu Digital Holdings, GMO
VenturePartners, etc.
Accounting &
Finance
MX
Technologies*1
USA
6.6*1(2015)
Digital Garage Personal Finance
Fril Japan
6.2 (2014)
Colopl, Cookpad, JAFCO Asia Mobile commerce
enablement
Accounting
SaaS Japan*2
Japan
5.7 (2014)
Fidelity Growth Partners Japan, Arbor Ventures,
etc.
Accounting &
Finance
Exchange
Corporation
Japan
2.2 (2014)
500 Startups, Arbor Ventures, Cherubic
Ventures, CyberAgent Ventures, etc.
Payments
BASE Japan
2.0 (2014)
Global Brain Corporation e-commerce
enablement
Kyriba Japan*3
USA
NA (2014)
Mitsubishi UFJ Capital, Mizuho Capital Accounting &
Finance
Legend:
Foreign companies
(the major shareholder is a foreign company besides VC)
*1: While the investor (Digital Garage) invested £ 6.6 M to the U.S. headquarter of MX Technologies, they announced the aim of the investment was introducing MX’s solutions
to the Japan FinTech market. *2: Accounting SaaS Japan was originally founded in Japan, but the company has been currently invested by multiple global VCs and SaaS
players such as Salesforce.com. *3: Kyriba Japan is subsidiary of the U.S. company
Sources: Accenture “The Boom in Global FinTech Investment”, Accenture research; Exchange rates: 1 GBP = 182.43JPY

Huge opportunity in the financial market
Potential Opportunities in the Japanese Financial Industry
The Japanese financial market is sizable compared to other countries, whereby the volume of personal financial
assets is the 2nd largest among OECD countries. In addition, the Japanese financial market is in a unique
situation whereby over 50% of personal assets are composed of cash and deposited in banks.
Top 10 Countries in Personal Financial Assets
(2013, Only OECD members) *1
Breakdown of Personal Financial Assets in Japan
(2014)
65.0
16.2
7.5
6.3
5.4
5.1
4.2
2.9
2.7
2.5
US
Japan
Britain
Germany
France
Italy
Canada
South Korea
Spain
Australia
Cash/
Deposit
53%
Stocks
10%
Securities
other than
stocks
7%
Insurance/P
ension
26%
Others
4%
(Trillion USD)
*Exchange rates: calculated based on 2013 yearly average rates.
(Billion GBP)
*Exchange rates: 1GBP=182.43JPY
Total:
GBP 9,288
Billion
*1: Ranking is estimated among OECD members. Sources: OECD, Global Note

Payment/Transfer

Section Summary
Expansion in e-commerce
continues but transactions
are largely fragmented
and cash-based
Methods of payment are
evolving towards a
cashless approach
Industry demands multiple
solutions, open to
overseas technologies
Successful alliances
observed between
FinTech companies and
existing players
2020 Olympics a catalyst
to boost FinTech Payment
market
• Purchase volume using credit cards is expected to reach £328.9 billion in 2020 due to
increased uptake from foreign visitors who prefer cashless payment solutions for the
Tokyo Olympics.
• The New Payment Services Act enables non-bank players to start payment services.
The funds transfer market by non-bank players has seen new entrants.
• Payment terminals with features that support all modern payment technologies, low
commission rates, or high usability will have a huge opportunity in Japan.
• Alternative payment solutions such as debit and prepaid cards are gaining popularity.
Internet service companies are eyeing BitCoin as a potential online payment solution.
• Mobile P2P transfer service is the new wave for the funds transfer market
• Japan has the second largest e-commerce market in Asia. With almost a 100 million
internet users, Japan continues to expand its digital economy for e-commerce.
• Payment solutions in Japan are fragmented, ranging from contactless cards with
FeliCa*, to online transaction solutions.
• Notably, the majority of Japanese consumers prefer cash payment. Even for e-
commerce transactions, 32% of consumers choose ‘cash on delivery’ for payment.
• The Japanese government has started to discuss changes in regulations regarding
online transactions to address changes from the rise of e-commerce.
• The 2020 Tokyo Olympics represents a key trigger to accelerate legal revision and
inject momentum into the FinTech industry.
• Credit companies are proactively engaging in partnerships with FinTech companies
who can provide credit card friendly settlement solutions.
• Japanese internet service companies are looking for FinTech Payment/Transfer
partners to build digital payment businesses that will help create an e-commerce
ecosystem.
*FeliCa is a type of NFC chip; contactless RFID smart card system from Sony in Japan

PayPal, WebPay, Spike
Coiney, Square, TMN, Rakuten Smart Pay, PayPal Here
Transaction solutions
PoS solutions
Expansion in e-commerce continues but transactions are largely fragmented and cash-based
Fragmented Payment Solutions
Payment solutions in Japan are fragmented, ranging from contactless cards with FeliCa*, to online transaction
solutions. New payment solutions are also on the rise, such as electric money and mobile PoS solutions to
address the growing demand of consumers.
Server-
Based
Debit Card Credit Card
Usage
occasions
• ecom-
merce
• transportation
• retail stores
• e-commerce
• e-commerce
• retail stores
• e-commerce
• retail stores
Prepaid
Card
Chip-
Based
Mobile
App
• Chocom
• Web
Money
• Bitcash
• Netcash
• Yahoo
wallet
• QUICPay
• VisaTouch
• iD
• J-Debit
• Visa Debit
• Visa
• MC
• JCB
• Amex
• etc.
• LINE
Pay
Interaction/
Connection
ID/ PW
• WAON
• PASMO
FeliCa*
Card
FeliCa*
Phone
• Smartplus
• PayPass
• PiTaPa
FeliCa*
Card
Contact Card
Contact
Card
Examples
FeliCa*
Phone
App
• ecom-
merce
Pre-payment Payment Post-payment
*FeliCa is a type of NFC chip; contactless RFID smart card system from Sony in Japan
Sources: CB Insights, websites of each company, JazLabs, payment navi, Venture Scanner
• EDY
• SUICA
• ICOCA
• nanaco

Financial Institutions tend to use “tried and true” security measures
Main Users of Security Measures (Megabanks)
Japanese megabanks have adopted “Tried and True” security measures such as biometric authentication, IC
card, and One Time Password. They regularly upgrade security measures to prevent illegal online transactions
such as One Time Password with verification system to prevent MITB.
• Commercial bank
• Founded in 1919 (as bank of Mitsubishi)
• Sales for FY2013: GBP 18.7 billion
• Employees: 78,105
• Commercial bank
• Founded in 1996 (as bank of Wakashio)
• Commercial bank
• Founded in 1923 (as bank of Hozen)
• ATM: With finger-vein scanners by Hitachi
• Card: IC card and IC card with finger-vein scanners by Hitachi
• Login: table of random number verification
• Transaction: One Time Password with card and transaction
verification system
• ATM: With palm-vein readers by Fujitsu
• Card: IC card and IC card with palm-vein readers by Fujitsu
• Transaction: One Time Password with mobile app and card
mandatory from new accounts created after August 2014, and
implemented to all existing accounts by mid-2016
• ATM: With finger-vein scanners by Hitachi
• Card: IC card and IC card with finger-vein scanners by Hitachi
• Transaction: One Time Password with card (manufactured by US
company called VASCO Data Security Japan), and email
verification
Company name Overview Security measure
The Bank of
Tokyo-
Mitsubishi UFJ
Ltd.
Sumitomo
Mitsui Banking
Corporation
Mizuho Bank
Ltd.
Source: Source: Bloomberg, Factiva, Hitachi, Itmedia, The Bank of Tokyo-Mitsubishi, Mizuho Bank, Sumitomo Mitsui Banking; Exchange Rates: GBP=182.43JPY

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