Slow start for fin­techs in Ja­pan

Fin­tech ini­tia­tives in Ja­pan are yet to pick up, mainly on ac­count of the unique na­ture of the coun­try’s bank­ing and fi­nan­cial sys­tem:

Banking Frontiers - - Highlights - Mo­han@bank­ingfron­

Fin­tech ini­tia­tives in Ja­pan are yet to pick up, mainly on ac­count of the unique na­ture of the coun­try’s bank­ing and fi­nan­cial sys­tem

The In­ter­na­tional Mon­e­tary Fund places Ja­pan at the third po­si­tion in the list of the world’s big­gest economies with a value of $5.1 tril­lion. The coun­try has seen 8 straight quar­ters of sta­ble macroe­co­nomic growth. It has its own ex­tremely am­bi­tious tar­gets for banks to open up their cus­tomer data, and it is ex­pected that by 2020 more than 80 banks will have suc­cess­fully adopted API Stan­dards. This has opened up amazing pos­si­bil­i­ties for busi­nesses seek­ing a new means to ac­cess con­sumer mar­kets. In or­der to take care of the chang­ing cus­tomer needs, the coun­try has adopted tech­nolo­gies like ar­ti­fi­cial in­tel­li­gence in a big way.

One of the ma­jor chal­lenges that Ja­pan is fac­ing while ush­er­ing in fi­nan­cial re­forms is the fact that the coun­try is largely cashre­liant. This is of course re­strict­ing the spread of fin­techs, but the Ja­panese gov­ern­ment has set a tar­get of achiev­ing 40% cash­less­ness by 2020 from the cur­rent 20%. One of the mo­ti­vat­ing fac­tors is the Tokyo Olympics that will hap­pen in that year.


How­ever, the bank­ing sec­tor is chang­ing be­cause of a com­bi­na­tion of fac­tors like shrinking pop­u­la­tion and in­creas­ing aware­ness about on­line bank­ing. In fact, the number of bank branches has come down and many banks are heav­ily in­vest­ing in tech­nol­ogy to be­come dig­i­tal. The Bank of Tokyo-Mit­subishi UFJ said it has seen the number of vis­i­tors to its branches fall 40% over the past decade and there has been a 40% in­crease in the number of re­tail cus­tomers us­ing a mo­bile de­vice or a com­puter to ac­cess the bank in the past 5 years. The bank in­tends to turn around one fifth of its branches into heav­ily au­to­mated and lightly staffed lo­ca­tions. The bank’s par­ent, Mit­subishi UFJ Fi­nan­cial Group, has re­cently in­vested 3 bil­lion yen in a fin­tech unit, Ja­pan Dig­i­tal De­sign, which is floated in col­lab­o­ra­tion with 32 re­gional banks in the coun­try. The man­date for the new firm is to pro­mote au­toma­tion of oper­a­tions through ar­ti­fi­cial in­tel­li­gence, even while de­vel­op­ing new ser­vices such as cash­less set­tle­ments us­ing smart­phones at small shops. Sim­i­larly, Su­mit­omo Mit­sui Fi­nan­cial Group is propos­ing to in­vest 20 bil­lion yen in a fin­tech over the next 3 years.

The Ja­panese gov­ern­ment is en­cour­ag­ing fin­techs in a big way. It has ini­ti­ated bank­ing re­forms. It has changed the bank­ing act 2 years in a row as against once in 5 years. Non-fi­nan­cial companies can now re­ceive 5% in­vest­ment from banks to set up fin­techs. The ef­fort is to make the bank­ing in­fra­struc­ture more open, and to foreign play­ers.


How­ever, the coun­try seems to be going slow com­pared with other de­vel­oped coun­tries. There are some 150 fin­techs in the coun­try and this com­par­a­tively smaller number is on ac­count of the al­ready ex­ist­ing high level of tech­nol­ogy in­duc­tion in the bank­ing sec­tor. Ja­panese peo­ple com­plain less about their banks and their oper­a­tions. The sec­ond rea­son could be the fact that the startup cul­ture is yet to come as peo­ple tend to take up jobs in one or the other multi­na­tional companies that are high in number in the coun­try. Start­ing a fin­tech ven­ture seems to be not very at­trac­tive for the ed­u­cated Ja­panese. Be­sides, some of the large cor­po­rates have their own fin­tech wings like Hi­tachi, Fu­jitsu and Sony.

Many startup ac­cel­er­a­tors’ pro­grams have been run by pri­vate companies to sup­port fin­tech star­tups. Al­though the number of fin­tech companies is still small from an in­ter­na­tional per­spec­tive, a grow­ing number of fin­tech ven­ture companies have now been de­liv­er­ing new fi­nan­cial prod­ucts and ser­vices, by com­bin­ing var­i­ous in­for­ma­tion tech­nolo­gies (e.g., smart­phones, cloud-com­put­ing, AI, big data anal­y­sis, blockchain, bio­met­ric authen­ti­ca­tion, open APIs). Based on the devel­op­ment of fin­tech in this re­spect, those companies are pro­vid­ing var­i­ous ser­vices for stor­ing, sav­ing, bor­row­ing, trans­fer­ring, pay­ing and pro­tect­ing money.

The coun­try’s reg­u­la­tor the Fi­nan­cial

Ser­vices Agency (FSA) is main­tain­ing the Fin­Tech Sup­port Desk, which is a on­estop con­tact point where fin­tech-re­lated companies can re­ceive con­sul­ta­tion on the le­gal is­sues in­volved with new fin­tech busi­nesses.


Ja­panese banks, in­clud­ing the 3 ma­jor mega­bank groups (Mit­subishi UFJ Fi­nan­cial Group, Su­mit­omo Mit­sui Fi­nan­cial Group and Mizuho Fi­nan­cial Group), and other fi­nan­cial in­sti­tu­tions are quickly mov­ing to cap­ture the growth po­ten­tial that fin­tech ven­ture companies can of­fer by es­tab­lish­ing ven­ture cap­i­tal funds tar­get­ing fin­techs. Su­mit­omo Mit­sui As­set Man­age­ment has set up Global AI Fund, which is in­vest­ing in companies all over the world de­vel­op­ing ar­ti­fi­cial in­tel­li­gence tech­nol­ogy for fi­nan­cial and other applications. Mizuho Se­cu­ri­ties has in­vested in a Sin­ga­pore-based fund work­ing to dis­cover promis­ing fin­tech ven­tures in Asia. SBI Hold­ings has set up a fin­tech fund to­tal­ing 30 bil­lion yen. Mit­subishi UFJ Bank has its own In­no­va­tion Lab di­vi­sion for fin­tech devel­op­ment.

An area where fin­techs have gained at­ten­tion is cloud com­put­ing-based ser­vices for cash man­age­ment ac­tiv­i­ties. For ex­am­ple, there is Money For­ward ser­vice, us­ing which an in­di­vid­ual or cor­po­rate cus­tomer can gain ac­cess, based on the link­age be­tween their own fi­nan­cial ac­counts (banks, credit cards, se­cu­ri­ties, etc.) and their Money For­ward ac­counts, to the one-stop-shop on­line ser­vices that en­able them not only to eas­ily man­age daily ex­penses, but also to do such things as ac­count­ing, pay­roll, pay­ment collection, ex­pense re­port­ing, as well as to send in­voices, see fi­nan­cial pro­jec­tions, and re­ceive au­to­matic as­set man­age­ment ad­vice. It is said that the ser­vice is now be­ing used by more than 4 mil­lion users and about 500,000 busi­nesses in the coun­try. The free app for An­droid or iOS has been one of the most pop­u­lar fin­tech ser­vice applications in the Google Play. Sim­i­lar ser­vices are also be­ing pro­vided by star­tups such as Freee and Zaim.

NTT Data, Ja­pan’s largest IT ser­vice provider, has pro­moted a pilot pro­ject to open its in­ter­net bank­ing API to con­nect the ser­vices pro­vided by Money For­ward and Freee with Shizuoka Bank, one of Ja­pan’s largest lo­cal banks. NTT Data plans to ex­pand this API link ser­vice to more fin­tech ven­tures to cre­ate var­i­ous types of open-API-ori­ented busi­ness.


One in­ter­est­ing prod­uct that fin­techs are pi­o­neer­ing is ‘cash­less and cardless’ pay­ment sys­tems, in which con­sumers are able to carry out trans­ac­tions with noth­ing more than a touch or wave. For ex­am­ple, the bio­met­ric pay­ment ser­vice pro­vided by Liq­uid, which is a fin­tech startup cre­ated by the Do­como Ven­ture Vil­lage, which has the sup­port of the gov­ern­ment. When us­ing the ser­vice, all a cus­tomer needs to do to pay at shops or restau­rants is to put his or her thumb on a small finger­print sen­sor ma­chine. Pre-reg­is­tered bio­met­ric data, bank bal­ances and other in­for­ma­tion are en­crypted and stored se­curely in the cloud com­put­ing sys­tem. Sim­i­larly, JCB, one of Ja­pan’s ma­jor credit card companies, has a pay­ment sys­tem us­ing Fu­jitsu’s palm vein authen­ti­ca­tion tech­nol­ogy. This ser­vice links vein pat­terns with credit card in­for­ma­tion, al­low­ing cus­tomers to make fast and se­cure pay­ments sim­ply by wav­ing their palms over a scan­ner.

While Ja­pan is of­ten de­scribed as a coun­try where in­di­vid­u­als as well as companies are not very much en­am­ored by dig­i­tal finance, the coun­try is lever­ag­ing its sta­tus as the world’s third largest econ­omy to de­velop its fin­tech ser­vices through a more sus­tain­able and scal­able en­vi­ron­ment for in­no­va­tion. Deloitte in its re­port on global fin­tech hubs names Tokyo as the 5th Global Fi­nan­cial Cen­tre, with a Global In­no­va­tion In­dex score of 16. It has taken a lit­tle longer than oth­ers to adopt fin­tech but now with reg­u­la­tors re­lax­ing laws, fin­techs are in­deed ex­pected to spread their wings.


Some top fin­techs in Ja­pan are:

Fo­lio of­fers theme-based stock in­vest­ment mod­els and a robo-ad­vi­soren­abled as­set man­age­ment plat­form. It is the first en­trant in the on­line bro­ker­age sec­tor to deal in Ja­panese stocks in roughly a decade.

Freee is an au­to­mated on­line ac­count­ing soft­ware de­vel­oped for smal­land medium-sized busi­nesses. It syncs with bank ac­counts and credit card ac­counts and au­to­mat­i­cally cat­e­go­rizes in­come and spend­ing through text anal­y­sis. All users have to do to gen­er­ate fi­nan­cial state­ments is to re­view how freee has cat­e­go­rized items and click to ap­prove.

Moneytree helps users to get a snap­shot of their per­sonal fi­nances. They can in­put mul­ti­ple bank ac­counts, credit cards, and even Ja­pan’s ubiq­ui­tous loy­alty cards into the app to vi­su­al­ize spend­ing habits, ac­count bal­ances, and re­ceive alerts when pay­ments are due, or points are set to ex­pire.

Money De­sign is the largest robo ad­vi­sor in Ja­pan, mea­sured by as­sets un­der man­age­ment. Its ap­pli­ca­tion, Theo, uses al­go­rithms and ar­ti­fi­cial in­tel­li­gence that was pre­vi­ously only avail­able to pro­fes­sional in­vestors. With Theo, in­di­vid­u­als can in­vest in a cus­tom­ized port­fo­lio se­lected from 6,000 ETFs, rep­re­sent­ing 35 world cur­ren­cies and 11,900 different stocks from 65 coun­tries. Money De­sign charges 1% as­set man­age­ment fee for its ser­vice.

WealthNavi of­fers a cloud-based as­set man­age­ment and robo-ad­vi­sory ser­vice that helps mid­dle-in­come peo­ple better lo­cate di­ver­si­fied in­vest­ments in­ter­na­tion­ally. It is cur­rently the clos­est pure robo ad­vi­sor com­peti­tor to Theo.

A Nao ro­bot at Mit­subishi UFJ Fi­nan­cial Group branch

A screen shot of Money For­ward

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