Japan, for many non-Japanese entrepreneurs, is a wonderful market but with many barriers. A different language. A culture very different from that of the Western world. A conservative and slow decision-making process in corporations. These all seem to signal that change is not welcome here.
That might not be the case, actually.
Fintech start-up Habitto saw new openings even when the doors all seemed closed.
Habitto is Japan’s first digital bank offering financial advice that primarily targets financial novices, with an emphasis on a savings interest rate of 0.3%, which is higher than most traditional banks. They aim to seamlessly assist novices on their financial journey by incorporating features such as investment and insurance into their app, along with offering access to online human financial advisers.
Despite being foreign founded, Habitto managed to secure an intermediary license from the Japanese Financial Services Agency (JFSA) faster than any other start-up since the license’s introduction. Yet neither of the cofounders is Japanese. CEO Samantha Ghiotti is from Italy, and cofounder Liam McCance is Australian. Team members come from all around the world, ranging in age from 19 to 60 years old.
How could a new brand, a group of foreigners, with a license that has never been issued before, manage to make a mark in the conservative Japanese market?
“I don’t speak Japanese!” Ghiotti admitted with a laugh when asked if she speaks the language. “Compared to other Japanese companies, we do indeed stand out as a group of odd ones out,” she continued, and what Habitto aims at is something that hasn’t been done before. “In fact, the name ‘Habitto’ is derived from the English word ‘habit.’ Because we want to create not just a digital bank but an app that fosters ‘new financial habits.’“
Both Ghiotti and McCance are veterans in the Fintech industry. Why would they choose to venture into the Japanese market? Ghiotti noted that there has been a gradual shift in conservative financial attitudes in Japan recently. Combined with the introduction of new regulations, and considering various factors, they believe that this presents an extremely promising large market.
In an era of zero interest rates, the Japanese people continue to save money
Japanese people are known for their conservative outlook when it comes to money. Statistics show that in the personal financial assets of Japanese individuals, “cash” or “deposits” alone make for over 50%, while other financial products such as stocks, bonds, and trusts account for only about 16%. This attitude reflects their reluctance to take risks.
Why do Japanese people love saving money? The economic bubble in the 1990s had Japan navigating through a period when the notion that “investing is too risky, saving is a virtue” took deep root in the culture. Furthermore, Japan has long been mired in economic stagnation, prompting people to place their money in banks with nearly 0% interest rates rather than face unknown risks in financial markets.
However, even in conservative markets, the changing global landscape can still give rise to new markets and opportunities.
Two key changes led Habitto to discover new business opportunities
The first change is the shift in the Japanese mindset, where “savings are a top priority.”
According to a 2019 report from the JFSA, pension payments for Japanese citizens are expected to decrease gradually in the future. Additionally, Japan’s unique lifetime employment system within corporations is gradually fading. With Japan’s increasingly aging population, coupled with the erosion of purchasing power due to inflation, those who persist in leaving their savings in the bank without earning interest may encounter the crisis of elder poverty.
Habitto targets financial novices by starting with savings, a financial product that Japanese people understand well. They provide a deposit interest rate of 0.3%, surpassing the near-zero rates offered by most banks. In addition, they target the psychological fear among the Japanese of not being able to recover their principal, emphasizing the deposit insurance system. This ensures that even in the event of a bank’s bankruptcy, the principal and interest deposited by users will be safeguarded.
The second change is the favorable impact of new policies.
At the end of 2021, the JFSA introduced a new intermediary license through the Act on Provision of Financial Service. This new intermediary law expands the horizons of financial products, moving from single-product sales to a more comprehensive integration of financial products, driving innovation and user experience in the financial industry.
Habitto leveraged this new regulatory environment by integrating savings, insurance, and investment into a single app. Habitto also recognized the Japanese preference for personalized services and introduced real-person financial consultations through video and chat functions within the app, allowing users to take their first steps into investing or purchasing insurance.
Decision-making speed and acumen are keys to opening up new markets
In Japan, businesses are known for their slow pace in fostering new collaborations, setting business cooperation milestones on a yearly basis. However, for start-ups racing against time and limited resources, this can be a significant challenge, as every moment counts.
“When we were just starting out, we faced the challenge of COVID-19, and expanding our business across borders seemed impossible.” But opportunities wait for no one, and Habitto did not wait idly by. The first step was to recruit the right talent. Ghiotti mentioned that although they couldn’t physically enter Japan at the time, they promptly recruited several high-profile individuals from the Japanese financial sector. Building a network within the financial industry allowed them to seamlessly navigate the intricacies of Japanese business collaborations.
Speed is also a crucial factor. While many companies were still sitting on the sidelines, Habitto had already taken the lead by submitting the application within the first two months of license availability. This allowed them to launch services ahead of competitors.
Habitto has continued to see an increase in downloads. “It’s not easy for a new brand to gain the trust of the Japanese people, but conversely, once trust is established, Japanese consumers have shown extremely high brand loyalty. I believe that this is a market with tremendous potential. “
While the development of new financial tools in Japan is still in its early stages, changes are happening quietly. Those who can seize the opportunity as pioneers will be the ultimate winners.
This article is part of a partnership with Cherubic Ventures. Founded in 2014, they are an early-stage venture capital firm that’s active in both the US and Asia, with a total AUM of 400 million USD. Focusing on seed stage investments, Cherubic aims to be the first institutional investor of the next iconic company and back founders who dare to dream big and change the world.