I believe that when most people think of the Japanese consumers, a few specific keywords leap to mind, such as “conservative” and “risk averse.” This sentiment can especially be applied to Japan’s fintech sector.

While fintech markets around the globe are taking off and producing unicorns in areas like digital payments, financial services, and investing, Japan still has precious few such startups of its own.

One of the few Japan-made financial tools to gain global popularity in recent years is a money-saving technique invented as early as 1904 – “Kakeibo.” In an era focused on digitalization and automation, it is especially unique. Kakeibo emphasizes the need for “hand-written” accounting, as it allows for a deeper understanding of the flow of money.

Another distinctly Japanese financial habit is the Japanese peoples’ claim that they are the best savers in the world.

Let’s compare consumer behaviors – before US consumers make a major purchase, the first thing they consider is how to build up their credit and find a loan. In Japan, the first thought goes to saving up for that purchase.

Data from the Bank of Japan shows that half of Japanese people’s financial assets tend to be either cash stored in a box at home or sitting in a savings account. Comparatively, in the US, the percentage of assets in savings accounts is only 12.6 percent, with most assets being investments in diverse areas such as stocks or funds.

The conservative Japanese attitude towards finances is indeed what has heretofore limited the domestic fintech market’s evolution compared to other countries. According to data from Crunchbase and CB Insights, Japan does not have a single fintech unicorn in the global top ten, ranking behind India, China, Singapore, and other Asian countries.

However, Japanese financial habits along with their impact on fintech are changing.

First, it’s important to note that the key reason behind Japan’s high rate of savings can be traced to the economic bubble in the 1980s that led to long-term deflation. Since savings accounts are safer and don’t depreciate in value, it makes total sense that they would become the key financial tool for the Japanese during this time.

However, Japan’s economy has recently hit a turning point, shifting from deflation to inflation. Over the past year, Japan’s headline inflation rate has wavered between 3 percent and 4 percent, well above its long run of near zero percent until 2022. In June of this year, Japan’s core inflation rate reached 3.3 percent, surpassing the US for the first time in eight years.

Coping with inflation is the norm for people in most countries, but it was heretofore unthinkable for Japanese.

According to a user behavior survey by Japanese fintech startup Habitto, after interviewing, nearly half of Japanese respondents aged 25 to 50 said that they had never even heard of the concept of inflation. Now, in order to cope with inflation, Japanese people need to start exploring financial management habits other than savings accounts.

Another factor triggering an urgent need for financial management is that Japan has the longest average life expectancy in the world, which means that they must proactively manage their finances and prepare enough retirement funds for their old age.

Japan’s recent economic liberalization has also opened up opportunities for the fintech market.

At the end of 2021, the Japanese Financial Supervisory Authority (JFSA) launched a new Intermediary License (Act on Provision of Financial Service). The license allows financial institutions to simultaneously sell banking, securities, and insurance products under a single regulatory system. In the past, banks, securities, and insurance were subject to different regulatory systems in Japan. Therefore, if you want to sell financial products, you could only obtain the corresponding licenses first, which required a long wait time and high costs to meet compliance standards.

This new intermediary bill will move Japan’s financial industry beyond clear barriers and vertical division by product towards horizontal integration. It will also greatly lower the threshold for new players to enter the market and drive innovation in financial products.

Source: KPMG

Habitto founder Samantha Ghiotti shared a bunch of interesting insights with me on what one entering the Japanese financial market should pay attention to.

As I’ve said in previous articles, I believe the jump-off point for any successful startup is to understand customer pain points rather than trying to instantly change behaviors. At the moment, savings accounts are still the most familiar tool and natural behavior for most Japanese people. Therefore, savings accounts would be an ideal touch point to begin building relationships with customers instead of launching an investment product that doesn’t mesh with their behaviors or requires heavy explanation.

In addition, Japan is a market that attaches great importance to “people-oriented” and “customer experience”. For example, Japanese department stores still retain practices such as bowing to customers and providing guide services.

That’s why a finance advisory platform like Habitto* emphasizes customer-centric services, a contrast to traditional Japanese financial advisors that provide services from the perspective of suppliers rather than customers.

As discussed above, the Japanese fintech market is also entering a turning point, from closed to open, from homogenous to diversified. And while this market is still in the early stages with both founders and consumers still figuring out how this change will subvert decades-old habits, the biggest opportunities are often born out of the initial chaos. The first to snatch the opportunity from the chaos first is the winner.

*Note: Habitto is a Cherubic portfolio company. 

Matt Cheng is Founder and General Partner of Cherubic Ventures. Matt is a Taiwanese venture investor, serial entrepreneur, company advisor, and former junior tennis player. Prior to founding Cherubic, Matt co-founded Tian-Ge in China and 91APP in Taiwan, both went public at over $1B+ in market cap. Matt is also a company advisor to Wish and Atomic VC, as well as an early investor in Flexport, Calm, and Hims & Hers.

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