There is a unique regional bank that is early to take advantage of new technology, advance digitalization, and sow the seeds of business growth on the African continent. Hokkoku Financial Holdings (Hokkoku FHD) is headquartered in Kanazawa City and has approximately 1,880 employees.

Hokkoku Bank, a subsidiary of Hokkoku Bank, has announced a plan to use blockchain to distribute its own digital currency (stablecoin) linked to legal currency (Japanese yen) within Ishikawa Prefecture, but by March 2024. Start of issuance and distribution of stable coin “Tochika” linked to individual savings accounts. Naotaka Terai, Head of Digital Department and Managing Executive Officer of Hokkoku Bank, made this announcement in an interview with CoinDesk Japan.

For credit card payments, merchants pay a fee of around 3%, but by expanding the options for cashless payments, which are cheaper than that, we will actively circulate funds in the region and improve the productivity of the local economy. We are currently in discussions with not only local banks in the area, but also several local banks across the country, and by distributing stablecoins with similar specifications, we hope to spread digitization and cashless technology throughout the Hokuriku region. .

If realized, it would be the first stablecoin in Japan to issue a stablecoin backed by deposits. When paying with Tochika using a smartphone app, the fees borne by merchants can be reduced to 0.5%, the lowest in the world.

2022 when the stable coin “Tochika” concept begins to move forward

Hokkoku Bank began considering the use of blockchain four years ago. After that, in 2022, we began full-scale consideration of payment methods using stable coins. Shuji Tsuemura, President and Digital Department, are co-founder of Soramitsu, Kazumasa Miyazawa, who developed Cambodia’s central bank digital currency (CBDC) Bakong, and is currently co-founder of the company. also held discussions with Kazutaka Matsuda, who runs a digital platform company.

“As we move forward with the (stablecoin) plan, we have been actively discussing with the Financial Services Agency regarding types of blockchains and anti-money laundering measures,” Terai said.

Hokkoku Bank then teamed up with Digital Platformer and began full-scale development of Tochika. It is currently in the final phase of development, with a view to publication in spring 2024. Digital Platformer is a company that provides distributed ID and digital currency issuance and management services for financial institutions and local governments.

“I believe that (deposit-based) stablecoins will be an innovation in payments.As credit card payment fees, which exceed 3%, have become a social issue, we as a regional bank are looking to develop local “We want to popularize it in the economy. We want to share the know-how gained through Tochika with other financial institutions and expand the use of cheap and safe payments,” said Terai.

According to Hokkoku Bank data, the payment fees paid by businesses in Ishikawa Prefecture are approximately 30 billion yen annually. By introducing Tochika, etc., this operator’s fee burden could theoretically be reduced to 5 billion yen. It’s been about eight years since Hokkoku Bank started issuing VISA debit cards, and so far it plans to encourage thousands of member stores in Ishikawa Prefecture to introduce Tochika.

Additionally, the bank is currently in negotiations with four Shinkin Banks in Ishikawa Prefecture to make Tochika available to individuals who hold accounts at Shinkin Banks. In the future, Terai says, “I would like to work together with JA and Japan Post Bank.”

Tokenization of “RWA” promoted by major financial institutions around the world

In 2023, the global market for crypto assets (virtual currencies) based on blockchain technology has lost the momentum it had a few years ago. Meanwhile, major banks and asset management companies around the world are using blockchain and smart contracts to tokenize financial assets such as land and bonds, and to automate some of their banking, remittance processes, and asset management operations. We have been actively working on this.

In the blockchain industry, it is called “RWA tokenization,” and it is attracting attention from outside the industry, including being reported on the U.S. news media “CNBC.” RWA is an abbreviation for “Real World Assets,” which literally means “assets that exist in the real world.” RWA includes real estate, government bonds, corporate bonds issued by companies, and gold.

It is easy to understand that a stablecoin is a tokenized form of “legal currency”, which is a type of RWA. Stable coins linked to the US dollar were developed quickly over the past five years among tokenized RWAs, and “USDT” and “USDC” have expanded their distribution scale around the world. USDC is issued by Circle, a company headquartered in Boston, USA, with investors including BlackRock, the world’s largest asset management company, and investment bank Goldman Sachs.

For the past five years, JPMorgan Chase, the largest US bank, has been actively pursuing a pilot project to upgrade its banking system using blockchain. The company has already developed “JPM Coin,” and is using the digital currency on a trial basis for remittances and other purposes for corporate customers who hold accounts at JP Morgan.

Mr. Terai said, “I believe that the remittance infrastructure (based on stablecoins) should be expanded to at least the whole country,” and added, “Tochika is a payment service for individuals, but in the future, it will be used as a payment service between businesses. I would like to develop it to the point where it can be used for things such as B-to-B remittances.”

Entering the African market, becoming the first Japanese bank to establish a local subsidiary in Kenya

Another unique business that Hokkoku FHD announced in 2023 is its African business. This business is managed by the company’s subsidiary CC Innovation (CCI), and plans are to send two employees to Nairobi, Kenya, in April 2024, and to open a local subsidiary by June. The company will develop businesses centered on financing and consulting for local corporations, and investment in startups.

Africa, with its rapid population and economic growth, is a huge market that is attracting the most attention in the Global South, and Japanese companies such as Sony, SBI Holdings, and Sumitomo Corporation are making venture investments in the continent’s fintech and gaming fields this year. announced its entry into the telecommunications business.

Kenya, where CCI has established a local subsidiary, is an economic powerhouse that drives the East African economic zone, including neighboring countries such as Ethiopia, Tanzania, Uganda, and Rwanda. It is also known as the gateway to Africa and has a population of approximately 53 million people. The population of Africa as a whole is currently 1.4 billion, and it is said that by 2050 this will increase to approximately 2.5 billion, meaning that one in four people on Earth will be African.

In May 2022, Mr. Tsunemura, President of Hokkoku Bank, Mr. Terai, Director of Digital Department, Mr. Akimitsu Ichigan, Executive Officer of CCI, and Mr. Hiroki Sunazuka, a consultant of the company, led the development of the Kenya business. An internal review has begun. We held numerous online meetings with AAIC (Asia Africa Investment & Consulting), a venture capital company that invests in venture companies in Africa, and thoroughly investigated the local situation.

Mr. Ichigan, who has lived in Shanghai for a long time, and Mr. Sunazuka, who has worked at a local subsidiary in Bangkok, toured Kenya and Ghana in February of this year, and Mr. Terai later headed to Nairobi.

“I realized the magnitude of the business opportunity. FHD’s current strength lies in abandoning the old ideas of regional banks and taking on new challenges that banks have not done before. The question ‘Why are regional banks in Africa?’ The answer was very clear,” said Ichigan.

After the tour, questions were asked from various parts of the company, “Why is a regional bank in Africa?” However, Ichigan says that it did not take long for the Kenyan business to be approved by the board of directors. When the company put out an internal search for two expatriate candidates to be posted to Nairobi, eight people raised their hands.

CCI has so far opened local subsidiaries in Singapore, Bangkok, Ho Chi Minh City, and Shenzhen, China, and has been expanding its investment and consulting business in Asia. Kenya will be the company’s fifth overseas base, and if realized, it will be the first Japanese bank to open a local subsidiary in Kenya.

Hokkoku FHD was the first to issue stable coins in Japan, and became the “first penguin” of the Japanese banking world, jumping into Africa and Kenya overseas. To what extent can Hokkaido’s corporate value be increased in the future by breaking out of its “regional bank shell”?

Interview/Text: Shigeru Sato
Top image: Hokkoku Financial Holdings head office building in Kanazawa City (Photo by author)
Photo: Airi Okonogi