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（Original Video in Japanese was published on the FINOLAB CHANNEL on Jul. 15, 2025 by Makoto Shibata）
As the fintech industry continues to evolve, a new question is gaining prominence in Japan: when does an advance payment service cross the line and become a regulated money lending activity under the Money Lending Business Act? In this article, this complex issue is broken down using recent discussions, regulatory updates, and illustrative case studies.
What Are “Advance Payment Services”?
Advance payment services involve a third-party provider making a payment on behalf of a user, with the expectation of reimbursement later. Examples include:
- Salary advance services
- Bill payment proxy services (e.g. for phone or utility bills)
- Buy Now Pay Later (BNPL) models
- Business payment platforms
The key regulatory question: Do such services legally count as “lending”?
Why Is This Now a Regulatory Focus?
The surge in new fintech models—particularly in e-commerce and digital payment ecosystems—has blurred the lines between payment facilitation and lending. This has led to:
- Ambiguity in legal interpretation: It’s often unclear if such services fall under lending regulations.
- Increased regulatory inquiries: The Financial Services Agency (FSA) of Japan has received more queries, prompting clarification through working groups and public guidance.
- Innovation outpacing legal framework: New business models often don’t fit existing definitions, creating gray areas that need clarification.
Regulatory Clarification from the FSA
In April 2025, the FSA released a Q&A on Advance Payment Services and Their Applicability to Lending Regulations, following discussions within the Financial System Council.
Key criteria introduced:
- Economic Substance Over Form
If the transaction has the same economic impact as a loan, it may be considered lending, regardless of contract terms. - Professional Intent
If the service is offered continuously and intentionally, it may be considered a “business” under the law. - Profit Motive and Scope
Services aren’t automatically exempt just because they don’t target the general public or charge fees. - Exemptions
Certain activities by banks or specific business operators under other laws may be excluded.
Two Key Evaluation Axes
When judging whether a service constitutes lending, two key factors are considered:
- Creditworthiness Assessment: Does the provider assess the user’s ability to repay or base conditions (fees, limits) on credit scores?
- Financial Risk Transfer: Is there substantial risk transferred to the provider, or is the reimbursement nearly guaranteed?
Case Studies: Lending or Not?
The FSA provided real-world examples:
Salary Advance Services → Not Lending
- Based on actual work performed
- Employer, not employee, bears service fee
- No repayment obligation for employees
- Short-term and limited in scope
Medical Expense Advance During School Trips → Not Lending
- Small, limited scope
- No credit scoring
- Repayment only of actual cost, not profit-based
Freelancer Bill Payment Proxy with Monthly Repayment → Considered Lending
- Users repay with fees
- Risk assessed based on income
- Operates on a recurring basis
- Requires registration under lending laws
Employer Payroll Payment Agency → Not Lending
Implications for Fintech Innovators
- Acts as part of payroll processing
- No interest, no credit judgment
- No repayment by employees
As interest rates rise and new services proliferate, clarity around whether a business model constitutes lending is more important than ever. The FSA’s recent actions show that regulators are becoming more proactive, offering frameworks and case-based interpretations to support innovation while maintaining consumer protection.
For entrepreneurs and developers, understanding these boundaries is crucial to designing compliant services from the start.
Final Thoughts
Advance payment services are now a hot topic in fintech compliance. The FSA has laid the groundwork for clearer interpretation, focusing on credit evaluation and economic substance. Going forward, these frameworks will help innovators navigate legal risk while contributing to a more sophisticated financial ecosystem.
