Why Japan is Already Becoming the World’s FinTech Leader

FinTech in Japan is far more advanced than most outside observers imagine it to be, and based on new deregulation and government incentives, finTech in Japan is about to accelerate even more.

Today we sit down and talk with Toshio Taki, co-founder of Money Forward, advisor to Japan’s Financial Services Agency, and the head of the FinTech Institute of Japan. He not only tells the story of the founding and growth of MoneyForward -- one of Japan's finTech success stories, but he outlines how the Japanese government’s plans to promote financial innovation while still maintaining the integrity and stability of the industry as a whole.

The Japanese banking regulators are, at least in this sense, far less conservative than you think, and they are setting up a finical ecosystem in Japan that will lead to far more innovative finTech startups than we are seeing coming out of Europe of America.

It’s a great discussion, and I think you’ll enjoy it.

Show Notes

How banking and credit card use is different in Japan Why most Japanese need multiple bank accounts Why finTech is evolving differently in Japan Who really controls household finance in Japan How Money Forward was reluctantly pulled into the B2B market How Japan's FSA is promoting finTech and financial innovation in Japan How the FSA is forcing Japan's banks to open up to innovation

Links from the Founder

The Money Forward homepage Japan's Financial Services Agency Connect with Toshio on LinkedIn

[shareaholic app="share_buttons" id="7994466"] Leave a comment Transcript Welcome to Disrupting Japan, straight talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for listening.

Okay. For all of you fastidious followers and fanatical fans of all things FinTech, I have a fantastic show for you today. We’re going to sit down and talk with Toshio Taki, co-founder of Money Forward, about how the Japanese government is forcing the banking sector to allow startups to innovate.

Well, perhaps forcing is too strong a word, let’s just say that Japanese banks are being strongly encouraged to work with startups. Now, Toshio studied under Peter Thiel at Stanford before co-founding Money Forward which has become the leading personal finance app in Japan. He’s also an advisor to Japan’s financial services agency and the head of the FinTech Institute of Japan.

After listening to Toshio, you’ll understand why the Japanese banking regulators are far less conservative than you might imagine them to be and why the Japanese financial sector is about to become a whole lot more competitive than what exists in Europe or North America.

Of course, this being Japan, risks must be understood and managed. And Toshio walks us through the Japanese government’s blueprint for fostering financial innovation while still maintaining the integrity and stability of the industry as a whole. This episode is required listening for anyone who wants to understand the future of FinTech in Japan.

And you know, Toshio explains that much better than I can so let’s hear from our sponsor and get right to the interview.

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[Interview]

Tim: So I’m sitting here with Toshio Taki, the co-founder of Money Forward and head of the FinTech Association of Japan.

Toshio: Cancelled meeting today and I’m very excited for this podcast.

Tim: I’m glad to have you here because I think FinTech in Japan right now and Money Forward, it’s pretty amazing space to be in. Before we get started on the overall market, let’s explain what Money Forward is. I know it’s online financial management software that you sell to individuals and small business but tell us more about what it actually does.

Toshio: Sure. In brief, Money Forward operates two types of businesses. One for the B2C where probably the most familiar name would be mint.com. We automatically gather information from every single bank in Japan by having people put in their credentials about the internet banking account and then make themselves a very simplified P&L statement for their individualized -- we deliver that for 5 million users in Japan which makes us the largest personal financial management tool in Japan. So that’s half of our business. The other half goes to the B2B market where it’s very much again like another name called Quickbooks that goes to the U.S. market. We operate a cloud-based accounting SaaS service targeted towards the SMEs. Around half a million businesses have an account in our platform. They employ either their accounting software of maybe their invoicing package. So we provide all sorts of these back office automation tools for the very small businesses.

Tim: Okay. What’s the basic revenue model? Is it like a freemium? Is it application upgrades? Is it consulting?

Toshio: For the B2C part, it’s the good old freemium model but it turned out to be a little of an exception in Japan where Japanese people do pay for monthly subscription model. They pay around $5 a month for the premium service and a fraction of our 5 million users use this premium model.

Tim: What percentage of your users are free versus the paid plan?

Toshio: We don’t actually disclose numbers but we always target 5% to 10% people to join our premium economy.

Tim: What is the biggest difference between the free plan and the premium plan?

Toshio: The largest two would be one is that you can connect more than 10 financial institutions. In Japan, a typical user has four or five bank accounts and three or four credit cards. This comes from a very unique Japanese market environment where we don’t have this kind of account maintenance fee where even if you have very limited balance in your bank account, you don’t get charged. The same thing goes to the credit cards. In Japan, it’s fairly easy to create a new credit card.

Tim: Why would a typical household open multiple bank accounts?

Toshio: In many cases, just having you move around doing your life like you change your locations or you enter the university, you go to your first workplace.

Tim: Okay. So just people accumulate accounts over time?

Toshio: Yes.

Tim: On the business side, is that also a freemium model?

Toshio: For the business side, it’s much more like a SaaS model where we do provide a trial mode but you can only use that for trials. We have a $10 a month plan for the proprietors and we have up to $40 or $50 a month model for the more larger companies. And also if you want to automate payroll practices or other invoicing and reconciliation practices, then we have a little bit more higher end model. We do this add-on features to have this multiple revenue models.

Tim: $50 a month for corporate accounting sounds incredibly cheap. What attracted you to Money Forward and how did you and Tsuji-san hook up?

Toshio: Initially, I was looking for some members to potentially build a new company and was asking all of my friends whether they know a person who both understands the internet and the financial industry because I wanted to do something inside the financial industry in a very internet-driven context.

Tim: Did you know what you wanted to build? You said you knew you wanted to do something in FinTech but did you know you wanted to build Mint for Japan?

Toshio: Initially, I was thinking about doing a Mint-like service in Japan but it’s always the issue that when you try to just import a service into Japan, it doesn’t tend to work very well because different countries are different. That’s very, very evident in the world of B2C industry.

Tim: Actually, let’s dig into this because I think this is a really interesting place. It would seem that like managing money, other than specific integrations with banks and things, it’s pretty much a universal activity. So what about the Japanese market is unique and made it unsuitable for products like Mint?

Toshio: Mint model relies on two very basic facts. It’s that the American people take care about their credit scores and they do not want to miss out on their billing. That was the reason why Mint was able to deliver the service for free for a long time. Instead of taking money directly from the consumers, they made this lead generation model so that credit card issuers will pay instead of the users. So that demand is not as evident in Japan.

Tim: Japan doesn’t have the U.S. equivalent of a credit score.

Toshio: Yes, it’s very frank to say that Japanese people do repay their money. Statistically, it is very evident. That’s one point where credit card industry is very, very different in Japan and also at the same time because they fear about this sense of stigma that goes with debt. People really don’t use that much of credit card.

Tim: Right. Well, actually until very recently, a revolving line of credit was not legal in Japan for credit cards who offer. By law they had to pay off at the end of every month.

Toshio: Yes. A lot of the people think that credit card is just like one kind of a post-paid mechanism where they pay the entire month next month.

Tim: In the U.S. the main driver of user adoption was consumers worried about their credit scores and credit balances and in Japan, what was it? Was it the access to multiple accounts? What was the main driver?

Toshio: I think people are much more viewing us as a service that they could actually buy financial safety. Being able to look at your not financial numbers was like an option that was never available.

Tim: In Japan, women control most of the household finance. In your customer acquisition strategy, did you do anything to specifically target women and housewives?

Toshio: That was the hypothesis we had when we entered the market but it kind of proved wrong.

Tim: Really?

Toshio: If you look at a typical manga in Japan like Doraemon,