New Currents in Lending and Credit From the Advance of Digitalization: New Trends and Outlooks in Embedded Finance According to Finatext x ABeam

Kamijo: SaaS refers to the practice of companies using services on cloud computing platforms rather than, implementing large-scale systems themselves as was previously done. That trend is now reaching financial institutions. The model under which banking functions and services provided by financial institutions are offered to other companies via an API is called “Banking as a Service (BaaS).” “Embedded finance” is the standout example of this model.

There have been countless examples of this model reported. Senshu Ikeda Holdings, Inc. used the GMO Aozora Net Bank platform, which provides BaaS, and obtained a bank license in February 2025 under the name 01Bank. Sumitomo Mitsui Financial Group and Sumitomo Mitsui Banking Corporation (SMBC) have also established an exploratory company looking into providing digital banking together with Money Forward. Mitsubishi UFJ Financial Group is also set to launch a digital bank using the Minna no Ginko platform. And NTT Docomo has converted SBI Sumishin Net Bank, which has a BaaS platform, into a fully consolidated subsidiary. It seems that the environment surrounding financial SaaS, and in particular BaaS, is showing significant movement.

Osawa: At the Finatext Group, we are working on the frontiers of finance x SaaS. To date, finance has generally been behind the curve on SaaS. By contrast, the move to a SaaS model at general business companies made sudden progress around five years ago with the introduction of cloud accounting software such as freee and Money Forward. A major reason for this is that accounting processes have a high degree of commonality, so they are standardized. For this reason, behind the move to accounting SaaS was the fact that, regardless of company scale or industry, there was little resistance to the implementation of cloud technology.
On the other hand, though operational processes in finance also have a high degree of commonality, a kind of industry-specific conservatism also had an effect. A situation in which the motivation never arose to set out on a move to a SaaS model has thus persisted. With that said, it is a fact that, as one would expect, business could not just continue on with on-premise (self-managed) environments. Financial institutions going through a shift to the cloud have thus begun to appear, leading to current trends.

Kamijo: I am involved in consulting for financial institutions. Bank operations are strictly regulated by law, and the details of the operations of any financial institution anywhere in Japan are largely the same. They really do have a huge amount in common. While this means that financial institutions have, thus far, not set out on implementing unprecedented cloud technologies, due to reasons of compliance with industry legal matters such as risk management and security policies, I get the impression companies are trying to significantly change that now.

Osawa: I believe that in the current process of change, advances in cloud platforms themselves are something that cannot be overlooked. At the Finatext Group, we provide SaaS with Amazon’s AWS as infrastructure. With gradual improvements to security features such as authorization management, an environment has been put in place that can be used with peace of mind, not only by general business companies, but also by financial institutions.

Kamijo: With that said, there is a big gap between the development of financial SaaS in Japan and abroad. One cause of that is that the systems at each major financial institution have different APIs. This is a major barrier.

In the West and across Asia, the standardization of API specifications has seen significant progress, so SaaS can be used irrespective of the systems of particular financial institutions. I fear that this is where we find a major factor explaining why Japan is behind (see Figure 1).

Osawa: APIs are the basic interfaces for transacting data. In Japan, no financial institution standards have been established in this respect, and it has been left up to each company individually. So, who can change this state of affairs? I think there are many possible answers. For example, a SaaS platform provider like our company could propose a standard, and a de facto standard for all financial institution APIs could potentially arise from that.

Kamijo: Within embedded finance, further growth is particularly expected in the credit and loans domain referred to as “lending.” According to various statistical sources, the total balance of personal loans and installment payment debts was 37 trillion yen in 2017, with this expected to grow to 47 trillion yen in 2024. Looking at this in terms of compound annual growth rate (CAGR), it represents a high figure of some 3.4% (see Figure 2).

According to our analysis, the recent progress of digitalization is what lies behind this sudden growth. The Japan Financial Services Association conducted a survey called the “Survey Results on Borrowing Attitudes and Behaviors Among Borrowers.” Looking at the proportions of application channels for unsecured loans by end users, there has been a decline every year in applications from unmanned contract terminals, manned stores, PC and web, and a corresponding increase of some 44% in smartphone contracting in the period from 2011 to 2023 (see Figure 3).

Another factor has also been the further diversification of loan application channels. With advances in API technology and AI scoring, the barriers to entry for financial businesses provided by general business companies have come down, leading to more and more new entrants to the market. It may be that the number of users of such services has grown in proportion to the increase in companies such as LINE, Mercari and FamilyMart entering the market.

Japan has seen blunt wages growth met with high consumer price inflation. Demand for personal borrowing is likely to increase further, and the scale of the personal loans market will likely grow going forward.

Osawa: That is right. At Finatext, too, we are paying a lot of attention to the personal loans market. No doubt embedded finance will prove to be a major point in this market as well.

Among the reasons that there has been an increase in new entrants to the finance business by general business companies, a big one is the possibility of linking to existing services. For example, take Mercari. They can link the individual identification data registered on their flea market service and the customer’s behavior history on Mercari when the user makes a loan application. For the user, this has the benefit of massively reducing the amount of work needed when making a loan application. For financial companies, the advantage is that they can use the applicants history, such as whether there have been any issues with them on Mercari, as part of their credit score.

Beyond the application, the user is able to do most operations from their smartphone, so they can get the benefit of convenience. The user can authenticate themselves using a fingerprint or face recognition, without having to go to the trouble of inputting a ID or password, and easily check information such as their next loan repayment date.

This also has advantages for business operators. They can notify users of repayment dates and amounts in advance through push notifications, preventing late collections in advance. If a late payment occurs, they will have to make a reminder phone call. As the operations costs of personal loans are high, the benefit of being able to reduce these costs is a major one.

Kamijo: Looking at the domestic market scale of embedded finance, the scale of the market in the payments domain, where PayPay is strong, is expected to continue growing going forward. However, it is predicted that the speed of growth will slow down. By contrast, according to Japanese investigative agencies, it is predicted that the market for loans has a lot of room for growth, as we talked about earlier. It has been suggested that in the coming five years it could have a CAGR of over 130%.

With that said, in the face of this business opportunity, banks have been slow to move to a SaaS model for personal loans. According to our own research as ABeam Consulting, while the megabanks are offering card loans that can be completed entirely in app on a smartphone, 90% of regional banks continue to provide such services via the web (see Figure 4).

Osawa: The lack of progress in transforming banks is a big challenge. At one bank, there were six steps involved in executing a loan. Each step required getting a stamp of approval on a paper checklist. Banks do operations for personal loans accepting systems and people from specialist lenders such as ACOM, AIFUL, Promise and Lake. However, even as the systems on the specialist lending provider side advance, these systems are not linked in with bank-side systems. Instead, operations are often still conducted in on-premise environments unchanged from when they were introduced.

In contrast to this, our systems are provided through a SaaS model, so businesses do not have to incur costs in time and money when upgrading or updating systems. If operational costs go down, naturally, profitability goes up. Companies can thus improve their competitiveness by, for example, being able to lend to users who previously could not be lent to, or being able to turn a profit even with slightly lowered interest rates.

Given these circumstances, there is a great deal of scope for growth through DX at banks, which we also view as a domain where we should offer support.

Kamijo: Going forward, companies entering the lending business will need to construct appropriate systems and operational processes. If they launch their services while outsourcing some of that to Finatext as a BPO, it will help reduce the lead time to when they are able to enter the market.

Osawa: This has been termed business process as a service (BPaaS). I think the number of companies outsourcing operational processes to external parties via the cloud will increase going forward. The fact that Finatext is able to take on such operations is down to the fact that we are a platform operator running Crest, which automates operational processes themselves, and, additionally, the fact that we have strengths coming from being a lender ourselves, handling hundreds of loan applications a day.

Kamijo: Among personal loans, a big proportion of the balances out there are in mortgages. This is something that is likely to become a big theme going forward.

Osawa: Mortgages are a big theme, so, as a company, it is definitely an area we want to take on. However, the amounts involved get very large compared to personal loans. They are not something you are going to be able to do in a few minutes via a smartphone, so it is going to be a challenging area.

Kamijo: With the arrival of a “world with interest rates,” that is, “a world with inflation,” large flows of funds together with deposits and loans have begun, like a dam releasing water. As change comes, financial institutions also need to change how they compete. As they say, “deposits you accrue through interest, disappear through interest.” I hope that financial institutions avoid getting into a war of attrition over interest rates by forming ecosystems (regional economies, digital economies) using their own external networks.
To that end, the power of digital technologies such as cloud computing, SaaS and APIs will be essential. We need new financial digital enablers not beholden to legacy systems. Finatext is, I believe, a company capable of playing a leading role on this stage.

Going forward, I hope we will be able to work in partnership with Finatext to create new services centered on the area of embedded finance, which is expected to be used even more widely. Specifically, I hope that we can work with Finatext in the planning of new businesses for city banks and regional banks, which ABeam Consulting provides support to, in order to more speedily realize those services.

I also believe that we will be able to offer services created in this way to a diverse range of players from other industries looking to obtain financial licensing in the future, and not just to financial institutions.

At ABeam, we champion the idea of being a “Real Partner with the same vision of future and the same value for successes” as a core value. We hope to be able to work with Finatext as a Real Partner to contribute to the promotion of SaaS in Japanese finance, and, by extension, to the revitalization of the Japanese economy.

Osawa: Thank you. On behalf of Finatext, I also hope that we can play our part in working together to build the future of Japan.