SMBC Group Takes on the Challenge of NFTs, Collaborating with HashPort in Token Business

SMBC had been involved in security tokens(*2) for a while, with a focus on digital security transactions. This token business targets individual customers, but customers’ interests in tokens has expanded beyond finance. Thinking that we could make use of tokens in business outside the field of finance, we held internal discussions on new business ideas.

An NFT(*3)-based business uses blockchains as a technical requirement, which meant we would need a partner. We approached some companies that operate NFT businesses and hit it off with HashPort Group as they were willing to consider new business ideas with us, so we started collaborating.

My first impression was that they had made concrete progress in their deliberations on an NFT-based business. NFT is a big keyword right now, so we have many customers who are considering it internally but don’t have a clear idea of what to do. But I was very impressed that SMBC had documents with concrete ideas ready at the first meeting. One of those ideas is something we are actually considering now, so I could tell they had a strong commitment and keen interest in innovation.

We imagined that our customers would be companies that already had IP (intellectual property). For example, if the customer was an auto manufacturer, we thought we could support publishing NFTs with the authority to vote on ideas for colors and forms when the manufacturer was developing a new car model, or maybe use NFTs as a special service for a fan community. It’s something different from the current business of converting digital contents to tokens and selling them.

It has two main features. The first is that SMBC’s main objective is not to sell NFTs, but to use NFTs to increase user engagement and evolve business. On that point they differ greatly from other companies. Rather saying we have an interesting IP so let’s make it into an NFT and try selling it, they are taking the next step and thinking about what changes the circulation of NFTs will bring. It is also revolutionary that a major company like SMBC is thinking about issuing NFTs.

There are many companies in Japan that have a variety of IPs, but in the current NFT market these IPs are treated as speculative products. Many companies are opposed to having their important IPs treated as financial tools, but little by little more companies are saying that they aren’t worried because financial institutions like SMBC entering the business will create a safer environment that supports issuing NFTs.

Currently, the trading of NFTs is generally done by crypto assets, but using crypto assets still presents a high hurdle for Japanese companies. However, if payments could be made by using something linked to legal tender, it would lower the hurdle for many customers. The reality now is that not only the price of NFTs fluctuates, the price of crypto assets also fluctuates. And it is difficult to handle crypto assets in terms of taxes, so in the current environment they are not easy for everyone to use. In that sense, I think it is significant that a financial institution is entering the token business.

I think that is particularly true in terms of enhancing credibility. A considerable number of our customers are interested in NFTs, but there are many cases where a front-line worker wants to do it, but it doesn’t get executive approval. For a customer that wants to incorporate NFTs into their business, partnering up with just a startup would seem dubious and unreliable. They could hire an attorney or consulting firm, but it would be difficult to develop it into an actual business. So, I think it is significant that customers can partner with a financial institution that is familiar, highly credible, and will give advice on a wide range of issues instead of partnering with a startup, consulting firm, or attorney.

Plus, with this project SMBC is taking on a challenge that involves NFTs, so the fact that they undergo transformation themselves and will share that expertise is also very persuasive to customers.

In addition to enhancing credibility, I think that the involvement of major financial institutions like SMBC will be able to turn the potential of the token business, which includes NFTs, into reality.

According to World Bank public data(*4) and research by Crypto.com(*5), the number of crypto asset users in 2022 was finally expected to catch up with the number of internet users in 1998. In other words, the current adoption rate of crypto assets is at the same level as the internet in 1998. The internet at the time was more like a toy for people with a little knowledge in computers, but as you know, now 20 years later it has been incorporated into almost every industry.

The same goes for blockchain technology. We are only seeing part of its potential and I am confident it will grow in the future. Tokens will be like apps in today’s smartphones and a wide range of tokens will emerge going forward.

In order to incorporate tokens into society, tokens will need to be connected deeply with and expanded into existing infrastructure, legislation, and other aspects of society. In the US, companies like Fidelity and JP Morgan are investing deeply in the field of blockchain. I’d like to expand this trend in Japan under the leadership of SMBC.

I think theme is more important than industry. Now SMBC is focusing efforts on environmental initiatives, and I think tokens can be utilized for purposes such as proving the environmental value of not emitting CO2. They could be used as a tool to prove the source of renewable energy, and I think the fields of the environment and token business have potential.

Here is one example of an initiative we are implementing now. Hoops link tokyo, an SMBC Group open innovation center in Shibuya, issued four types of NFTs to mark its five-year anniversary. I wonder what value users will discover in the NFT badges issued when they visit hoops link. We will improve and expand our token business further based on the realizations we gain there.

Right now we are discussing what our next steps will be with HashPort. We will conduct research and pilot tests to drive the token business at the newly established Token Business Lab. We are also considering issuing unique SMBC tokens, so stay tuned.

When proposing to more companies to enter the token business going forward, we will demonstrate the effectiveness of tokens through proof of concepts. Collaborations will result in great potential for the token business, so it is important to collaborate with as many companies as possible. We will start by explaining the basics of NFTs, so if there are any companies that are interested, please contact us. Through more opportunities like this, I hope to find better approaches.