Name
Global FinTech Guide
Country _ Name
Japan
SectionTitle
Loan services/factoring/loan broking/finetrading
Body
FinTechs belonging to this category act as a loan creditor (even short and very short-term loans), are broking loans or receivables or conduct factoring of loans, which were given to private or business customers. In this business area you also find “peer-to-peer” (P2P) services, in which FinTechs enable a multitude of users to give loans (and brokered by the FinTech-platform) to other users or companies.

Finetrading is hereby a financial service of FinTechs, where they buy due receivables and grant the debtor an extension of payment time. 

As an ancillary service some FinTechs offer alternative credit assessment services to check the solvency of a borrower.

Introduction

Attitude of the country towards loan-giving-, factoring-, brokerage-, finetrading- and ancillary services

Multiple consumer loans have become a social problem and as a result revisions to existing laws as well as tightening of regulations have been made in stages since 2006. Accordingly, the market size for consumer loans made by Lending Business Operators is generally declining. According to statistics, the number of Lending Business Operators decreased from 14,236 in 2006, to 1,548 in 2023. On the other hand, the balance of loans has been on a recovery trend since 2016. Regarding loan and related services involving FinTech, statistics show that 80.6% of credit companies introduced internet for their services as of 2019, which is almost double the number from 2017 (43.8%). Furthering this digitalization trend, many Lending Business Operators are interested in leveraging FinTech for purposes such as social lending or credit judgment using AI. Therefore, it is expected that loan services involving FinTech will continue to be on the upswing in the future. As for factoring, statistics show that factoring volume has generally been increasing for the past seven years.

In 2024, the Japanese government enacted the Act on the Promotion of Cash Flow-Based Lending. The purpose of this new legislation is to correct prevailing lending practices that rely heavily on real estate collateral and personal guarantees by business owners, thereby supporting the continuity and growth of corporate businesses and contributing to the sound development of the national economy (Article 1). Under this new legislation, a novel security interest called "kigyo-kachi-tanpo-ken" has been introduced. This security interest allows lenders to treat the entirety of a borrower’s business assets—which serve as the sources of future cash flow, such as movable property, accounts receivable, and intellectual property—as a single, unified collateral asset. This concept is similar in nature to what is internationally known as an enterprise value charge. The law is scheduled to come into force in 2026. As the implementation of this framework will require more sophisticated credit assessments, collaboration with FinTech companies offering AI-based credit analysis and scoring technologies is considered beneficial for financial institutions. Such cooperation is expected to accelerate, further enhancing the effectiveness of cash flow-based lending in Japan.


Legal affairs

Obligations and requirements to provide loan-giving-, factoring-, brokerage-, finetrading, and ancillary services described above
The Money Lending Business Act stipulates that a company that intends to loan money or act as an intermediary for the lending or borrowing of money as a business shall be required to register as a Lending Business Operator. To be able to register, a company must fulfill requirements such as a net worth greater than or equal to JPY 50 million and must have a certain level of human resources.

On the other hand, a license is generally not required for factoring services. That being said, a license is required if the business falls under "claim management and collection" as defined by the Act on Special Measures Concerning the Management of and Collection on Monetary Claims. Under this act, "claim management and collection" means “the business of any person other than an attorney-at-law, a legal professional corporation or attorney/registered foreign lawyer joint corporation conducting, under an entrustment, the managing and collecting of specified monetary claims arising from legal services concerning a legal case, or conducting, through a suit, mediation, settlement, or any other means, the management and collection of specified monetary claims assigned by another person.” To obtain this license, an applicant must fulfill requirements including capital funds greater than or equal to JPY 500 million and must have a certain level of human resources (ex. an attorney shall be a director).
In each case, it costs JPY 150,000 as license tax for registration (and other agency commissions in certain cases). The registration of the Lending Business license shall be renewed every three years, and the same license tax is required for each renewal.

Additional comments regarding the legal situation for loan-giving-, factoring-, brokerage, finetrading-, and ancillary services or what FinTech’s must be aware of in this business area

In addition to the above registration requirements there are multiple pieces of legislation that may become an issue depending on the business description. For example, the Consumer Contract Act (nullifies clauses that impair the interests of consumers unilaterally), the Act on Specified Commercial Transactions (imposes restrictions on advertisements for mail order sales), the Act on Prevention of Transfer of Criminal Proceeds (obligates companies to confirm identification, among other requirements), the Act on the Protection of Personal Information, the Act Regulating the Receipt of Contributions, the Receipt of Deposits, and Interest Rates (prohibition on unqualified entities receiving monetary deposits), or the Interest Rate Restriction Act.


Economic conditions

Market size for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services and biggest companies in this business area

The market size for consumer loans made by Lending Business Operators in Japan was JPY 7.1 trillion as of March 2022, and the number of Lending Business Operators was 1,548 as of March 2023. However, the above data is not limited only to lending services using FinTech. With respect to social lending services, according to private research made public in 2021, the market size was JPY 112.5 billion in 2020.

Regarding the market size of factoring services, statistics show that factoring volume in 2022 was 57,277 euros.

The market size of other fields is unclear due to lack of currently available statistical data.

Additional comments regarding the economic situation for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services or what FinTech’s must be aware of in this business area

Social lending services have achieved recognition in the past decade. However, since 2017, there have been a number of cases where major operators have received administrative guidance from governmental agencies. In particular, there have been cases in which operators have misused the information gap between operators and fund providers to collect funds by misrepresenting or giving misleading explanations to fund providers, resulting in loan defaults. In response to this situation, financial authorities and industry associations have requested businesses to proactively disclose information on their loan providers to protect investors. In addition, in the “Interim Report” released in June 2022 by the Working Group on Market Systems of the Financial Services Agency's Financial System Council, it was pointed out that similar to funds that invest in securities, lending operators should take necessary measures such as clarifying their duty of care and duty of loyalty, as well as providing additional information to investors.

P2P lending services are not nearly as common in Japan, compared to other countries.



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