Much like other countries, the spread of COVID-19 in Japan means schools are closed and people are working remotely without commuting in packed trains. In addition, the fate of 2020 Tokyo Olympic and Paralympic Games is uncertain. People are instructed not to drink and party – the nightlife of Tokyo is now non-existent.

In a TEIKOKU DATABANK (TDB) survey of over 10,000 companies in Japan, it was reported that more than 63% of companies believed that COVID-19 would have a “negative impact on their business performance.”

In response, SMEs in Japan are reaching out to FinTech startups for a quick–cash in order to cope with the challenge – and as part of their fund procurement attempts.

As compared to traditional banks, FinTechs utilise technologies to speed up the process of such applications. Therefore, many of these business owners resort to FinTechs for Plan B in order to access necessary monetary assistance as soon as they apply.

Besides speed and accuracy, FinTechs are also able to offer alternative financing methods not easily accessible by traditional banks.

The followings are the voices of the business owners in Japan as reported by Nikkei:

We managed to ride out the crunch by converting several hundred thousand yen in accounts receivable into cash

– Owner of a Meat Wholesaler in Chiba Prefecture

Sales take three or four months to be booked as cash, per industry practice, we can’t raise enough capital by just taking out a loan

– Junichi Kamiya, president of Tokyo-based ad agency Kamiya

So where do FinTechs come in?

SMEs are embracing online loans more than ever before in Japan. Freee, a cloud-based accounting software developer, reports a surge in the number of applicants in February for bank loans to prequalified customers.

Freee uses AI to perform the necessary KYC in order to estimate potential loan amounts, as well as interest rates and other terms. In about a week, partnered banks will then release the loans.

Money Forward is another FinTech that is providing a similar service. With pay-out being disbursed in as quick as 3 days in some cases, this makes it a more attractive alternative.

To compensate for quick cash pay-out, loan applicants will have to bear higher interest rates.

Also, as suggested by the owners, taking loans sometimes simply isn’t enough. They are turning to a FinTech like Olta, offering factoring to help cope with the financial pressure, instead of just seeking loans. Olta is backed by Shinsei bank.

The idea of factoring is fairly simple – when debtor can’t pay suppliers, Olta comes in, purchase the invoice at a discount, the supplier get money first, Olta now deals with the debtor. This means suppliers do not have to worry about lacking liquidity and interrupted cash flows.

Olta buys receivables at about 2% – 9% discounts upon screening based on factors such as financial statements and bank transaction records. Then, the start-up makes a payout within the same day. It was reported that the number of applicants in March tripled as compared to last year.

Money Forward, who also offers similar service, said the service is popular among industries where customers tend to delay payments, such as advertising, event organization and construction.

According to Nikkei, factoring service became popular in 2010 when FinTechs in the US brought it online. In Japan, 10 such FinTechs are available in the country, according to Fintech Association of Japan.

Crowdfunding platforms are also among the FinTechs which businesses are reaching out to during this pandemic. For instance, Campfire is a Tokyo-based platform that is being used to raise funds to help cover for the losses. The popularity of it is also due to the reduced commission fee that the platform offers to help fundraisers.

According to Nikkei’s report, about 860 project applications have been filed for a 5% processing fee instead of the usual 17%. About 200 projects have been launched, already raising 270 million yen, or about $2.5 million, as of 8th April 2020.

What do we think?

Recently, besides declaring a state of emergency to combat new corona virus infections in major areas, Japanese Prime Minister Shinzō Abe also unveiled a $1 trillion stimulus package to soften the economic blow. That amount is amongst the world’s biggest.

Although it is evident that the government is putting in tremendous amount of effort to help its citizens endure the storm with the stimulus package. It is without a doubt that the program will require a period of time to be implemented and for the money to reach the businesses.

It is evident that FinTechs in Japan are doing an exceptional job as a support to ease short-term pain and to obtain trust from consumers. In fact, we believe that FinTech is the answer to act as stop-gap before government aid reaches the struggling businesses. Without a doubt, the FinTech community is playing a huge role in Japan in supporting the local economy.

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