As Regulations Allow, Japanese FS Investors Are Coming in a Big Way

In recent years, the interest in FinTech startups in general has increased at an exponential rate. Many established financial institutions, card networks and mobile network operators (MNOs) are diving head-first into this domain. Aside from creating branches dedicated to the development of their own technologies in these fields, many larger companies are pouring funds into financing younger startups.

LTP analyzed the investments that were made in the FinTech Industry during July–November 2015. According to the analysis, more than $4.5 billion of investments were made in the FinTech Industry during this period. The analysis also revealed that the majority of the funding raised by the companies was to expand their services globally.

The president of Japan's third-largest bank said that Sumitomo Mitsui Financial Group is seeking to purchase into the rapidly growing FinTech sector ahead of the lifting of a ban on such investments next year.

Sumitomo Mitsui Financial Group (SMFG) was established through a share transfer from Sumitomo Mitsui Banking Corporation in December 2002. The companies of SMFG offer a diverse range of financial services that are centered on banking operations, including credit card services, leasing, information services and securities.

Koichi Miyata told Reuters that Japanese banks lagged global peers in FinTech because of regulations that only allow them to own traditional finance firms such as brokerages. Miyata said that in a bid to redress that, SMFG has already started working with FinTech startups. "There is a limit to what we can do on our own for FinTech," Miyata said. "If they (FinTech startups) join our group, we can lock-in all of the profits we generate together."

Recently, Mitsubishi UFJ Financial Group Inc. collaborated with Finatext Ltd., a Tokyo-based financial technology venture. Through this collaboration, Mitsubishi UFJ looks forward to augment investment trust sales by providing information with the help of a smartphone application—The Fundect app.

Finatext CEO Ryota Hayashi said that the Fundect app developed by Finatext Ltd. helps users select investment trusts and exchange information about the funds. It shows banner advertisements for the bank. "This product meets the needs of users immediately, which is something that banks and securities firms have been lacking," Hayashi said. "Our first goal is to get 100,000 downloads."

This partnership is the first ever partnership for Mitsubishi UFJ with emerging FinTech providers. Mitsubishi UFJ has entered into an industry that is set to disrupt the traditional financial services sector in the future. Mizuho Financial Group Inc. has also said that they are seeking out similar ventures.

Miyata said that for Japanese banks, embracing FinTech could also force changes to their corporate culture which puts more emphasis on not making mistakes than missing out opportunities. "We have to venture into a world where we cannot expect a 100% success rate," he added. "We have to be prepared to accept failures to achieve success. We have to change our mindset."

Both banks and FinTech have their strengths and weaknesses, and both will be better off by cooperating and combining the best they can offer to cover each other’s weaknesses. Banks can guarantee rapid scaling with significant funding and access to demand. The FinTech sector can offer the most innovative and efficient solutions for better customer service.