TOKYO: Japan’s Mizuho Bank and SoftBank will dissolve a 50-50 joint venture offering AI-based credit score and lending service after the business failed to gain traction in a market where credit scores have yet to take off.
The J.Score service launched in 2016 with great fanfare, offering an artificial intelligence-backed programme that set interest rates and lending limits for applicants based on analysis of their personal data.
Then-CEO of Mizuho Financial Group Yasuhiro Sato said at the time that the business would change the concept of personal loans, including by giving loans to people who previously did not qualify.
But the company never managed to turn a profit, incurring a net loss of ¥1.5 billion (US$10.98 million) for the fiscal year ended in March 2022. To cover losses, Mizuho and SoftBank had each invested an additional ¥5 billion twice – in April 2018 and again in July 2019 – to bolster the company’s capital.
J.Score will now be integrated into Line Credit, with which both Mizuho and Softbank have capital relations. Line Credit is an offshoot of the Japan-based messaging platform Line.
The venture’s fortunes were hampered by a number of hurdles, including a shortage of specialists.
J.Score was designed to analyse data collected from individuals and improve its AI model on a daily basis. But despite the relatively low-interest rates offered by the service, it did not attract enough users, leaving the AI model with an insufficient data set.
It could have built a new model using the available data, but rising wages for data scientists meant hiring additional staff proved a challenge.
J.Score was also unable to succeed as a personal data trust bank, where user data is sold to other businesses after obtaining customers’ consent. The business model of collecting and selling personal information did not fit well for a company funded by a megabank, a kind of institution that values society’s trust.
The company also bungled its app strategy, amid competition from players like communications giant NTT Docomo and Line.
Line Credit, which provides small loans using proprietary scores, enjoys an established customer base from its messaging operations and also markets its loan services on the chat platform.
Softbank’s payment app PayPay may have offered a similar opportunity for the company to direct loan applicants to J.Score, but instead, they were directed to personal loans from PayPay Bank.
As the venture failed to capitalise on its parent companies’ customer base, only around 1.4 million people had J.Score credit scores, compared to Line Credit’s more than 7 million score holders.
The world’s digital lending platforms have seen rapid growth, driven by credit scoring services. The market is forecast to reach US$20.31 billion in 2027, according to US-based Allied Market Research.
Credit scores are particularly prevalent in China. Sesame Credit, a subsidiary of Alibaba-affiliate Ant Group, has effectively become part of the nation’s credit infrastructure. A high score can lead to perks such as dedicated departure lanes at airports, or security deposits being waived when signing a rental contract.
But market growth in Japan lags behind the rest of the world.
“It is necessary to make credit scores more attractive by creating mechanisms for users to monitor their own data and by taking measures such as lowering hurdles for information use,” said Ryuichiro Omori, a former president of J.Score and current president of Mirai Score, a credit score service startup.
