For decades (centuries, really) lending in Japan has relied on personal guarantors and introductions rather than objective credit scoring. This startup is changing that.

Before starting Credit Engine, which provides credit scoring, automated approvals, and other services to mega-banks and other financial institutions,  Sei Uchiyama founded an online lending startup to ensure he understand this market from the bottom up.

Credit Engine currently automates everything from loan approvals to the collection of delinquent and non-performing loans, and its already starting to change finance in Japan.

Sei and I talk about the future of finance in Japan and the surprising way competition between FinTech startups and the banks is likely to play out.

It’s a great conversation, and I think you’ll enjoy it.

Show Notes

  • How much of the loan process can a startup be involved in
  • How the mega-banks are experimenting with this technology
  • The post-tsunami rescue micro-finance fund
  • Why pivot from direct lending to financial services
  • Why lending fintechs startups have trouble raising funds in Japan
  • How real-time credit scoring will change consumer behavior in Japan
  • Is Japan really “over-banked” and what that means for innovation
  • Japanese mega-banks’ reactions to financial innovation
  • How automated debt collection improved results by more than 1000%
  • Are the biggest FinTech opportunities in developing or developed markets?
  • Mega-banks’ secret weapon in competing with startups
  • How easing labor protections would help Japanese employees

Links from the Founders


Welcome to Disrupting Japan. Straight Talk from Japan’s most successful entrepreneurs.

I’m Tim Romero and thanks for joining me.

Japan has always had a, well, let’s call it a “conservative” attitude, towards consumer borrowing. Credit card balances are generally paid in full at the end of the month. Most household purchases are saved for rather than financed and outside of a mortgage, debt is generally seen as a bad thing. In fact, rather than using consumer credit scores, most Japanese lending still relies on introductions and personal guarantees.

But Sei Uchiyama, the founder of Credit Engine, is changing that. Over the past few years, Sei, has both started a new lending company and partnered with some of Japan’s largest banks to streamline and automate loan approvals and issuance. And he and the team have even developed an automated system for collecting non-performing loans that outperforms traditional methods.

Now Sei and I talk about how faster and simpler access to credit in Japan might change things for both good and for bad, what it’s going to take to truly disrupt financial markets and whether that will turn out to be a good thing and the differences between Fintech’s startup strategy in developed and developing markets.

But, you know, Sei tells that story much better than I can. So, let’s get right to the interview.


Tim: So, we are sitting here with Sei Uchiyama, the founder and CEO of Credit Engine who’s providing turnkey lending solutions to financial institutions. So, thanks for sitting down with us.

Sei: Thank you very much for the opportunity talking here.

Tim: So, I explained really briefly what Credit Engine does, but I’m sure you can explain it much better than I can. So, what is Credit Engine?

Sei: So, Credit Engine is the online lending platform providing the loan origination system and also the collection system for financial institutions, including banks and non-banking financial institutions.

Tim: I understand it’s a full service system. You provide scoring automated approvals all the way through processing and collections, right? So, that’s quite a lot. So, tell me about what types of loans are you originating?

Sei: So, with a loan origination product, which is called C-Loan, it can cover from like the business loan to the commercial loan. For example, Mizuho Bank is providing mortgage with our system and Mitsubishi UFJ Bank providing small online lending. And also other banks are using our system to streamline or digitalize the operation of the traditional loan process that is not on online lending. It’s more like they also have the loan officer and meet the borrower face-to-face. So, basically we can cover any types of loan.

Tim: Later, I really want to get into kind of the unique nature of lending in Japan. I think technology is really going to change how lending works here, but before that, tell me a bit more about your customers. Who are you working with?

Sei: So, our customers are from Megabanks to the independent lending company like Mitsubishi UFJ Bank, Mizuho Bank, and for other local banks are like Fukuoka Bank, Shizouka Bank. And also we are working with Line Credit and also FamiPay, which is the lending company of the Family Mart group. So, any types of financial institutions.

Tim: And is the primary advantage they see in Credit Engine that it streamlines existing processes or does it allow them to — is it like expanding the market for them so they can make loans in smaller amounts since they can get the approvals quicker?

Sei: Actually, there are two ways that financial institutions use our system. One is for the operational system for their new services, such as like online lending service for small businesses, Japanese financial banks used to have that kind of service like 10 or 20 years ago. But after the shock and other financial crisis, they have stopped those kind of services. But after the technology develops, they are seeking now new opportunities in that area. So, since like five years ago, some banks are getting to online daily market for small businesses. So, when they’re thinking about entering a new market, they needed a kind of new technology.

Tim: Why did it take the banks so long to move online? Because if you look at the rest of the financial industry, I mean, insurance went online in the early 2000s. So, why did it take banks so long to move lending online?

Sei: They’re already active online that they have kind of interface for the end users to apply, type in their names and then address or some basic information and apply. But the after that they are using Excel and other traditional ways to operate inside a company. But now going on is more like a visualization of the entire process of the lending. Not only the application, but also end to end from application to the contract and also repayment. And that’s what is happening and that’s where we are providing our system.

Tim: Now I want to get back to that and dig in detail because I think that is going to have huge effects on the Japanese economy as a whole. But before we do that, I want to talk a little bit about you.

Sei: Me. Okay.

Tim: You’ve been involved in innovative finance for quite some time now. You were involved in a NPO that ran a rescue microfinance fund at one point, right?

Sei: Yeah. So, maybe I better start talking about my career. So, I studied my career at Shinsei Bank and after that I spent one year in Sendai after the earthquake and I was helping small businesses to raise fund to rebuild their businesses where their business was going by tsunami.

Tim: How did that work? Was that a government fund? Was that a private NGO?

Sei: I was working for NPO, but basically helping the small businesses to applying for the government or subsidiary or the loan for local banks. It was nothing like technology, but it was very good experience for me to run about how the borrowers are feeling about the application process because the one who can get money is the one who can rate the rate very good. It’s not how passionate they’re doing the business. It’s more like a how elaborate your business and how good are you presenting? So, I see kind of that kind of pain they have. Yeah.

Tim: Were these like small loans? Was it a few million yen at a time? What were the sizes?

Sei: So, it depends on the banks, but it’s starting from like 1 million yen and as big as could be like a hundred million.

Tim: Okay. So, anywhere from $8,000 to $800,000.

Sei: Kind of, yeah.

Tim: After the microfinance, you were at Money Forward?

Sei: Yeah, actually after the microfinance, I went to my MBA at UCLA, there I switched my career from finance to more like a tech side. And then I decided to join Money Forward, which was in like 2014 when they have just studied their online accounting service. I was in the sales division and also the business development.

Tim: And you started Lendy in 2016?

Sei: Yes.

Tim: Lendy was issuing small business loans.

Sei: So yeah, so I feel I know the pain, how a borrower, the thinking through my experience of the microfinance. And also I knew the pain of the bankers. And then I spent two years in the states online business and I see some like kind of online lending type of service or like Cabbage or OnDeck. And I was thinking like that kind of business could happen in Japan.

Tim: So, when you started Lendy that was really targeted at SMBs? It was small loan amounts, short-term loans?

Sei: Yes. It’s targeting basically small businesses sales, less than 1 trillion Japanese yen, which is like $80 million and providing a small loan after like 5 million yen. And we are using the online data, including online accounting system or e-commerce cart system like yourself of the Amazon or Rakuten and also the credit card transaction so that we can get the direct data from the system which cannot be manipulated. Usually like a small businesses tend to manipulate the balance sheet or financial statement, but using those original data with us more credibility or security of our credit model.

Tim: Looking back to 2016, a lot of small businesses were still very cash based. If you went to restaurants or barbershops, there weren’t a lot of online transactions.

Sei: Yes, I think it was a time even the PayPay was not out yet, right?

Tim: I think, yeah.

Sei: Yeah. But I think the trend was going on that way and I thought it’s better to start earlier to have some kind of market presence.

Tim: And now you’re still running Lendy, but you’ve expanded into Credit Engine, which lets you white label these learnings. So, why the pivot?

Sei: So, after I started Lendy, lots of banks including like local banks, mega-banks, asked that they are interested in using that system to provide their own online lending solution. We thought that that would be very good opportunity for us.

Tim: Do you ever get concerns from your customers, from your banks that you are competing with them? That you’re competing for the same borrowers?

Sei: Sometimes, yes but happy or not, but we are not that big at the time. So, comprehending the banks, so not…

Tim: They don’t view you as competition. Not yet anyway.

Sei: Actually in Japanese market, it’s kind of hard to raise fund for the balance sheet business. Looking at the US market. A lot of like a family office or investors are providing money for lending business to make their loans, but the banks doesn’t really want give money for the lenders actually. That’s one of the reasons I pivoted from the lending service to the work level.

Tim: That’s interesting. Because it’s a business that they certainly understand inside and out.

Sei: Yeah, that could be because of the competing maybe. And also back in like 10 or 20 years after the lending regulations changed, a lot of individual lending company went into bankruptcy. So, after that they have kind of internal regulation, not giving money to lending services.

Tim: I see, I see. I want to get back to the comments you made about being early to the market, integrating with point of sale systems with credit card data and that has become credit engine’s data hub, right?

Sei: Yeah, because we started Lendy and using those online data, we also wanted to provide that kind of data for the banks, which use our white label system. That’s why we created sheet data half, which accumulates the data from the online accounting system or other online system which small businesses use and with the content of the user provide data for the banks.

Tim: So, this is pretty close to time data in terms of the company’s transactions and things.

Sei: Yes.

Tim: So, that I imagine is going to be really, really important in Japan. So, let’s talk a bit about kind of the unique nature of Japanese lending. Consumer loans, small business loans in Japan are really different than they are in the United States. So for example, in Japan there’s no FICO scores. Everyone relies very heavily on personal guarantors, personal guarantees. A lot of manual processes. How is that limited lending in Japan?

Sei: It usually said that Japan is overbanked and there are not many people who is unbanked or underbanked. There are lots of consumer lending services and also lots of small business lending, but it’s face-to-face, but the guaranteed by the government.

Tim: What does it mean to be overbanked? I’m not…

Sei: Providing a lots of banking service actually. So, it’s always…

Tim: So, more banking services than people need?

Sei: Basically. Compared to other countries? I think so, yeah.

Tim: All right.

Sei: So, there’s not many opportunity in Japan that new lending company like OnDeck or Cabbage types of service.

Tim: But it would seem to me with credit engine’s ability to provide objective automated credit scoring, it would seem to me that’d be something that the Japanese banking industry would be incredibly interested in because they don’t have that now.

Sei: So, banks basically thinks that it’s inevitable to digitalize the process. And what they can do is basically to ask software integrator to make something from scratch or using the platform like us who has the basic features already. But using our service will shorten the process of the development and also reduce the costs. And at the same time they value our experience in lending service. We are not only the system provider, we also using our own system to make loans. That means that we have more knowledge of the operation that makes us a competitive in this market.

Tim: Do the Japanese mega banks, do they see a future where most loan issuance, the credit scoring is not human beings looking over spreadsheets but based on automated credit scoring and automated risk evaluation?

Sei: I don’t think all loan transaction will be automated because if it’s a very large loan of the commercial building, automation doesn’t really help you to streamline the process.

Tim: No, no, exactly. But I mean for most consumer loans or small business loans, if we’re talking $10,000 to a hundred thousand dollars type of a range.

Sei: Yeah. So, for those kind of loans will be automated. I think they all mega banks are thinking that way. So, they’re slowly starting to automate the process from the smaller size and they want to make the coverage bigger. They want the loan officers not working for the documents, but they want them working for like more like additional services like consulting or other type of fees they can earn.

Tim: Right, something that adds value. That generates revenue. Yeah, that makes sense. You know the other side of the loan debt collection is something that’s also very heavily regulated here in Japan. You need a license to be involved with it. You can’t simply sell non-performing loans. It’s a tightly regulated market. And I read that some of Lendy activities has been buying non-performing loans and automating the collection process.

Sei: Yeah, so we have C-collection, which is the automation of the debt collection process. We provide a system for the financial institutions, but we also use C-collection by ourselves. So, we have debt collection company, which is called Lendy Servicing. And also we have C-Asset, which is the company for purchasing non-performing loans. So, we purchased some non-performing loans from consumer lending companies and using our system to collect those non-performing loans, that is very important for us to not only generating revenue but also testing our systems and to improve the system itself.

Tim: What does automated debt collection look like? What is the process?

Sei: Okay. It used to be there are lots of operators that are making phone calls and they will reach to the borrower. They make a schedule the repayment, re-negotiate the terms. And what we do is providing all communication or call, phone call to set up the repayment schedule, which doesn’t require an operator.

Tim: So, are you contacting lenders on email or SMS?

Sei: What we do is automated the process of the debt collection, which includes the old phone call and any email and SMS and also we provide the customer page for every borrowers so they can set their repayment schedule online so it doesn’t require operators.

Tim: Oh, okay. Someone with outstanding debt would get an email or an automated call or an SMS link and they could go to the site and set up their own repayment schedule?

Sei: Yes.

Tim: And has that been successful?

Sei: Yes, I think it’s very successful. So, we’ve been using the system about a half of the customer is actually checking their outstanding roles. It’s a very good number. The reach is very good. We can reach about a half. If you make a phone call, I think it’s only about like 5% of the customer pick up the phone. But if you are using the multiple ways, including automated calls and the customer page, half of the customers actually check. So, they might not have the money to repay right now, but it is very important to remind them so that they don’t forget about repaying. And once they get money from a bonus or some other salary, if they know that there is an outstanding loan they haven’t paid, they can repay. So, it’s very successful so far I think.

Tim: So, I read that you did some pilot projects in the Philippines and Thailand on this. Can you talk about how that worked overseas?

Sei: Yeah. From 2021, we started marketing our product in Southeast Asia and so far we found some partnership in Philippine and Thailand. In the Philippine, we are now partner with the second largest debt correction company in the country, Este Madrid. And they are basically making phone calls by operators. But they also interested in automating the operation for the future. And in Thailand we are partner with the lending company which is the micro finance company and they haven’t done anything about the correction. So, we provide our system. I think it’s a very good opportunity for us to enter new market.

Tim: Have the results been similar to Japan? Are you seeing that that 50% reach?

Sei: I think the result is a little bit different from Japan. For example, in Thailand customers are more skeptical about the links sent by SMS compared to Japan. So, the rate is a little bit lower. So, we are now trying to improve the process so that the more customers can reach to the webpage. And in Philippines I think there are lots of like a manipulated all phone calls, so yeah, we have to find other way. Yeah, so it’s kind of different. Yeah.

Tim: Actually talking about going global. So, you have offices in Japan and in Singapore.

Sei: Singapore, yes.

Tim: So, why Singapore?

Sei: So, thinking about entering the marketing in Southeast Asia, because we didn’t know which country we can go in either, Thailand, Philippine or Indonesia, but after a marketing for a year, we realized that we don’t need to set up a company in each country. We can work only from Japan and Singapore. And that is obviously enough to do business in Thailand, Philippine and Indonesia. So yeah, that’s working so far.

Tim: So, Singapore acts as your sort of Southeast Asian hub of operations?

Sei: Yeah, so we have a good networking events here going on and also FinTech events and lots of investors are here as well. So, it’s a good place to have a base.

Tim: And in terms of the other markets, the projects in Thailand, the project in the Philippines, how do you choose markets? Are they just opportunistic? Do you go into a market when you find a good partner pilot project? What’s your decision making process?

Sei: So, basically we don’t need to focus in one country. We can provide our system from Japan to any country. So, we’re not focusing on one country. Basically what we do is going to event and then doing some networks and then finding a partner who is interested in our service. So, now we’re also talking to some South American or Central American companies as well. And sometimes we also talk to the Indian company or African company. But just providing the system itself doesn’t require to have a company to in each country.

Tim: You mentioned before about Japan and probably some other markets being overbanked. And listening to some of the most interesting pilot projects you’re doing, they’re in kind of developing economies. So, do you think the big opportunity for Credit Engine and for these kind of services, do you think the bigger opportunity is in the larger developed markets or in the smaller developing markets where it’s less banked where there’s maybe more dynamism?

Sei: We we’re still figuring out which market is better suited for us, but the competition is a very important aspect for us. Even though it’s a big market, if there is a heavy competition, I don’t think it’s a good choice. Yeah, it really depends.

Tim: Let me ask you some questions about the future in Japan. Japan traditionally has not used a lot of consumer credit. I mean people pay off their credit cards at the end of the month. It’s very much a saving society.

Sei: Yes.

Tim: Do you see that changing? I know that like credit card use is up a lot over the last 10, 15 years. Consumer loans seem to be growing. Is this a behavior that’s changing in Japan now?

Sei: Compared to like Southeast Asian countries? I think in Japan it’s not changing that much. Of course the consumer lending market is increasing, but it won’t be like our countries I think. But still a very big market. For me also, after I started my company, I am kind of running out of my personal and then sometimes needed to use that kind of service. So yeah, there is enough needs.

Tim: So, it’s developing but you don’t see it getting to the way it is in the United States or in Southeast Asia.

Sei: I don’t think Japanese will have that kind of behavior like in the States or in Southeast Asia, but it’s still changing a little bit.

Tim: All right, so if we’re looking at all this new technology and changes in the law, specifically Japan, but I think it applies everywhere, we’ve got better access, almost real time access to revenue information to expense information. We’ve got companies like credit engine that’s providing credit scoring to approvals, to debt collection on an automated basis. We have changes in the laws that allow peer-to-peer financing of loans. So, if we can use peer-to-peer financing to gather the capital, if we can use these automated systems to process, score, evaluate, issue, and collect on the loans, what is the real value add the banks in the future would be offering on the $10,000 to a hundred thousand dollars loans. Is this a business they might lose in the long run?

Sei: I don’t think so because the competitiveness in the lending market is based on the cost of you raise money. Banks can raise money much, much lower cost than other independent lending companies. It’s almost zero. So, that means that they can offer a better interest rate compared to independent lending company. So, after the technology is available for everyone, it’s the competition of the price. That means that banks can easily win, but before the banks cannot use those kind of technology. I think there’s a chance for the independent lending companies or other companies to get in that market. But if bank realize and they can provide a service, I think bank can win.

Tim: Okay. So, I had it exactly backwards. It’s not the little companies that are going to push the banks out of the small lending. It’s going to be the banks leveling up their technology and pushing the small lenders out of the lending business.

Sei: Yeah. At the beginning of the market it goes that you saying, but after like 10 years, I think it’s going the other way because the cost of the raising fund.

Tim: That makes a lot of sense. Hey listen Sei, before I let you go, I want to ask you what I call my magic wand a question. And that is, if I gave you a magic wand and I told you that you could change one thing about Japan, anything at all. The education system, the way people think about risk, anything at all to make it better for startups and innovation in Japan, what would you change? So, for example, you went to UCLA and something there changed your mind about entrepreneurship, so what specifically was it for you, but what change could you make in Japan that would have more people changing their minds and say, I want to be an entrepreneur. I want to do something like this on my own?

Sei: I think it’s a liquidity of the labor force. Employees are very strong under the role. So, the company cannot really cut people even though those employees are not doing well or the companies are not doing well. So, that means like lots of Japanese people try to stick with the same company. So, if there is a liquidity of the labor force, I think people will be more kind of willing to take risks and trying to find new job for their new opportunity. Not thinking about this, trying to stay in the same place and that makes more entrepreneurs coming in or more business trying to recover and more new visions.

Tim: You know that’s a really good point. I mean, usually when people talk about employee rights and how hard it is to fire employees in Japan, they’re talking about it from the company perspective. But I think you make an interesting point that it also would benefit the individuals on an individual level. It would force people to think more seriously about what function am I doing? What am I good at? Where am I adding value? It does kind of lead people to change the way they think.

Sei: Yeah. People, especially in the big company now, first thinking about how they’re going to stick with the company. Maybe not everyone, but a lot of people. But if they can think about their barrier in the market, I think that will give better opportunity for people and for the companies as well.

Tim: Well, listen, Sei, I want to thank you so much for taking the time to sit down with me today. I really appreciate it.

Sei: Thank you very much. It was nice talking to you.


And we’re back.

You know, it’s hard to overstate the potential impact of a product like Credit Engine’s credit scoring system in Japan.

While it is true that there has been a strong cultural aversion to borrowing and to debt in general, this social convention has also been reinforced by things like the friction involved in getting the loan. The complex personal guarantor process and strong legal restrictions on interest rates and on debt collection.

Both credit card use and consumer loan volume has risen quite a bit over the past decade. But how much of this is cultural and how much is driven by economic necessity is up for debate. And you know, perhaps it won’t really matter in the long run anyway, with automated credit scoring and the streamlining of the whole process, we’re likely to see an acceleration of this trend and a lot more borrowing going on in Japan.

Whether that’s a good thing or not, I will leave for the economists and the sociologists to debate.

But one of Sei’s ideas that I found extremely interesting was the underlying reason for his pivot to white labeling; that he thinks the big banks will be the winners in this market in the long run.

And this brings up something that we founders and investors tend to forget. Technology and innovation gives us an edge, it gives us a running head start, but the rest of the world is not standing still. They’re watching what we do and adopting the best of it whenever they can. And in many cases, their economies of scale can overtake our innovative head start.

But good startup founders don’t worry too much about this. By the time the enterprise is figured out how to adopt our innovations, we’ve developed a whole new set of even better innovations.



If you want to talk more about FinTech and the coming changes to Japan’s financial system, Sei and I would love to hear from you. So, come by disrupting and let’s talk about it. And hey, if you enjoy Disrupting Japan, share a link online or you know, just tell people about it. Disrupting Japan is free forever and letting people know about it is the absolute best way you can support the podcast.

But most of all, thanks for listening and thank you for letting people interested in Japanese startups know about the show.

I’m Tim Romero and thanks for listening to Disrupting Japan.