When European fintechs think about international expansion, neighbouring countries the US and China are common targets. What’s not so common is Japan — but a changing economy, a need for new tech-driven solutions and startup-friendly government policies could change this.
The argument for launching in Japan is strong: a weaker-than-usual yen means European startup cash goes further, while rising inflation (after decades of deflation), coupled with a decline in Japan’s unique shūshin koyō (lifetime employment) system, means younger workers are now more receptive to job opportunities at startups.
A shift in attitudes towards financial services is also promising — while cash is still the most popular way to pay for things in Japan, the number of cashless payments reached 39.3% in 2023, almost hitting the government’s target of 40% by 2025.
Japan punches above its weight in terms of GDP, and it’s an interesting market
And while the home-grown startup ecosystem is snowballing — around $6bn was invested in Japanese startups in 2023, a 10-fold increase from a decade ago — it’s small enough that there are still plenty of opportunities for foreign startups to nab market share.
“Japan punches above its weight in terms of GDP, and it’s an interesting market,” says David Inderias, the cofounder and CEO of Australian fintech Fresh Supply Co, which started doing business in Japan in 2019. “It’s different and the numbers are great — on industry, manufacturing, global trade.”
Tokyo calling
Tokyo has become a hub for fintech activity, with young startups looking not only to bring on the city’s global financial services firms as customers but also to provide more modern solutions for small businesses and consumers.
“Tokyo is much more accessible for financial services-related businesses compared to other cities [in Japan],” says Chang Li, a FinCity.Tokyo ambassador and director of the Fintech Association of Japan.
As part of the Tokyo Metropolitan Government’s target to “10x” the city’s startup ecosystem by 2027, in line with the country’s broader five-year plan for startups, it has set up FinCity.Tokyo, a public-private partnership organisation that supports international fintechs launching in Tokyo. FinCity’s support programmes cover everything from basic administrative procedures like company registration and setting up a corporate bank account, to more specialised assistance with business development and networking.
“In one day you can go to Marunouchi [Japan’s financial district] where you’ll meet most of your important clients, and then in 20 minutes on the subway, you can go to Shibuya, which is where Google and other major tech players are,” adds Li.
Fintech startups that now call the city home include blockchain and NFT company double jump.Tokyo, which raised $10m in Series D funding in August, and PayPay, Japan’s largest mobile payments app.
For Fresh Supply Co, the city and its growing community of startups and service providers have provided valuable inroads when it comes to tasks like hiring, setting up corporate entities and even translation.
“There are cultural nuances that you need to respect when going to Japan — things like setting up bank accounts and company registrations are going to be different, and may take multiple tries,” Inderias says. “If you don’t go in with contacts, you may find yourself frustrated.”
Fresh Supply Co is based out of FINOLAB, Tokyo’s fintech innovation hub, and has also been supported by the Tokyo Metropolitan Government, which helps foreign companies set up in Japan. For example, the company participated in a business matching and pitch contest event for non-Japanese fintech firms held by FinCity earlier this year.
International ecosystem builders like US investor Plug and Play and Elevandi have also set up Tokyo outposts, and in April, Techstars announced the launch of its first Japanese accelerator programme in the city.
Culture shock
Even with all this help, Japan can still be a tricky market to crack. Consumer preferences are vastly different to Europe (solutions targeting financial fraud, for example, may not be so interesting given Japan’s reputation for safety), while a proliferation of family-run firms means that, although there is appetite to modernise finance functions, there is also plenty of caution around new technologies.
We’ve had a great experience because we engaged with the fintech community
While UK challenger bank Revolut received its licence to operate in Japan in 2018 — making it one of a small number of international companies to have achieved this at the time — it wasn’t until 2020 that its service was actually up and running.
But don’t let that put fintechs off. Estonia fintech G-Bank Technologies launched its multilingual banking app for foreign workers in Japan in 2023 via a subsidiary based in the country, while UK insurtech YuLife has been experimenting with a pilot of its workplace wellness app, to see how popular it is with Japanese consumers, since October.
Takeshi Kito, a fintech entrepreneur and cofounder of Elevandi Japan says startups should assume sales cycles could be six to twelve months longer than they are used to. The newness of the startup ecosystem also presents a challenge — while rising inflation may be encouraging Japanese workers to look for new opportunities, there is sometimes a skills gap.
Patience and a willingness to get stuck into the fintech community and build a personal network are therefore a must for foreign founders building in Japan.
“We’ve had a great experience because we engaged with the fintech community,” says Inderias. “You’re not going to go there, snap your fingers and be photocopying money. You have to be patient, committed and willing to contribute.”
