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Japanese Fintech Startup Raises Funds Despite Virus Chilling VCs

Pavel Alpeyev

(Bloomberg) -- Kyash Inc., a Tokyo-based digital banking startup, has raised $45 million from investors at a time the coronavirus outbreak threatens to dry up venture capital funding.

The Series C round was co-led by Greenspring Associates Inc. and Goodwater Capital, bringing the total raised by the company to date to $73 million, Kyash Chief Executive Officer Shinichi Takatori said in an interview. Kyash, which also counts Jafco Co. and Japanese banks Mizuho Financial Group Inc., Mitsubishi UFJ Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. among its investors, will use the funds to expand its digital banking offerings.

Kyash has developed a payment platform that links directly to Visa Inc.’s system, allowing it to issue cards to consumers as well as tailor services to businesses. The company is part of the growing universe of so-called challenger banks, a group of mostly online operators that aim to use technology to reduce costs and lure customers away from established competitors. The cohort includes Monzo, Starling Bank and Revolut Ltd. in Europe and Chime in the U.S. SoftBank Group Corp.’s Vision Fund last year invested $800 million into financing company Greensill.

“It is a vote of confidence in our business, especially at a time like this,” Takatori said. “Our investors believe we can be the leading challenger bank in Japan.”

The 34-year-old CEO founded the company five years ago after stints in banking and consulting. Kyash launched a peer-to-peer money transfer app in 2017 and added a Visa-linked payment wallet a year later. It declined to disclose user numbers and other figures and only said its systems currently process about one transaction per second.

In Japan, Kyash is up against heavy competition. Mercari Inc., whose mobile payment service counts more than 6 million users in the country, this year acquired pay service Origami Inc., while e-commerce giant Rakuten Inc. runs its own bank, has a credit card with more than 19 million customers and is launching a mobile network. SoftBank is in the process of creating a domestic giant by combining its Yahoo Japan internet business with Line Corp., whose app is used by about half of Japan’s population to send instant messages every day. Both companies compete in mobile payments.

While Takatori acknowledges that not having a large, existing user base is a challenge, he says his company enjoys a light cost structure because it was built from scratch. The app also reflects transactions in real time, without delays typical of cards that involve processing by third parties.

“Unlike some of our competitors, we are not doing this to funnel people into some other service or try to sell them a mobile plan,” Takatori said. “This is our main business.”

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