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:
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.
BANKS SUPPORTING FINTECHS
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