September 26, 2017
Japan FinTech Summit Week Fin/Sum, organized by FSA (regulator), banks, Nikkei, and the FinTech Association of Japan, was great learning for me seeing things up and close and meeting some great people in the financial services space. Japanese are very nice people in general and the Fin/Sum organizers were great hosts. I was invited to speak at the event on India FinTech and found it amazing that people had a lot of interest in the subject. I spoke about IndiaStack, UPI and FinServ experiences (Google Tez, PhonePe, Kotak 811, Digibank, and many others) being built in India after the financial re-wiring over last several years and it was very well-received. After speaking to local experts in FinServ and FinTech in Tokyo, here are some notes about FinTech in Japan:
Japan, the land of technological superpowers and extremely developed industry/infrastructure, is a fairly conservative nation when it comes to FinTech startups and people like to stick to tried-and-tested systems. We currently track around 100+ Japanese FinTechs. There are only a total of 150 FinTechs or so. It’s much smaller in numbers when compared to prominent FinTech hubs but Japan has some great startups.
The first reason one can think of with regard to the relatively lesser entrepreneurial activity in FinTech is solid banking infrastructure/penetration; there is less dissatisfaction with traditional FinServ in Japan than there is in other parts of the world. At one of the side-events by M2020, around 100+ people as part of a survey said they trust their banks and would share their data with them. The Japanese are very sensitive to security and data privacy – much more than the Indians or the Chinese. I was told by a local that this could be influencing their thinking about new solutions.
But we quickly figured out that the other reason for the lesser number of FinTech startups is probably because not many entrepreneurs have ventured out into FinTech in Japan when compared to what we have seen in other such large economies. I was told by one of our customers here that this is because most people would join a big company after graduation to avoid risking their career and work there for several years. Venturing out into FinTech is not very common, but it’s changing (slowly but surely).
Apart from banks and FIs like MUFG (Mitsubishi), Mizuho, SBI, SMFG, I also saw that the FinTech scene is dominated by what we call "large FinTechs" (companies having big products/solutions in financial services) – NTT DATA, NEC, Hitachi, Fujitsu, NRI, and Sony Financials. Their participation and impact on the market is huge.
Things are changing though in favor of FinTech. Until 2016, the Banking Act prevented Japanese banks from having a stake higher than 5% stake in a non-finance-based company, limiting them from investing heavily in FinTech startups. However, the law has now been abolished. The Tokyo Metropolitan Government (TMG) launched FinTech Business Camp Tokyo to encourage established overseas FinTech players to enter the city's financial services market. Rakuten, the Japanese e-commerce group, has launched a $100 million fund to invest in FinTech companies and SBI Holdings, a financial group, raised a ¥30bn ($299m) FinTech venture fund in 2016. Last week, as reported by BI, Japan's Prime Minister Shinzō Abe said the government is moving forward with a plan to rollback regulations on some Ffintech startups to help spur the development of emerging technology and drive growth in the country. "When one wants to conduct a world-first trial, such as with new financial services made possible through FinTech, it is impossible to predict the sort of regulations with which the trial will come into conflict," Abe said at the New York Stock Exchange. As such, Abe is pushing for a regulatory sandbox program that will allow FinTechs and startups looking to automate or digitize aspects of financial services, to operate and scale without having to conform to existing regulations.
As I said earlier, there are some really good startups; the PFM area especially has some strong ones like Moneytree and Money Forward (scheduled for IPO next week). Also, I met the WireX (crypto to a fiat/normal card that you can swipe) guys and found them to be passionate and talented.
NTT DATA runs an Open Innovation Contest globally and SMFG already has innovation labs and centers in the US. The bank and FinTech connect are beginning to happen in a big way.
You should also have a look at some of the innovative FinTech products that are showcased in this picture such as Brees, a paperless convenience store, and new stuff from Moneytree, Japan’s #1 financial data aggregation platform, providing financial data API services (B2E) and personal finance apps (B2C) and others such as Toranotec, Quick, FTRI and others.
Here are the final six startups at the Fin/Sum pitch run:
Shift Payment, US: http://www.shiftpayments.com Folio, Japan: http://www.folio-sec.com Finantix, UK: http://www.finantix.com Wilov, France: http://www.wilov.com TenX, Singapore: http://www.tenx.tech Tradle, UK: http://www.tradle.io
Tradle from the UK won the competition. Watch the winning pitch here.
From a consumer perspective, these are my views as a foreigner in Japan for a week, traveling extensively across Tokyo (and in my discussions with locals and people who came here 10-20 years ago and never went back for the obvious reason): Tokyo is just so beautiful and they have nailed each and every experience in life from transportation, food, to the water jet in the commode (yes, we prefer water over toilet paper), bowing down to show respect, etc. And the list goes on and on.
Something that strikes you (you might know this) is the high usage of cash everywhere. E.g., small mom-and-pop shops. Oh, and McDonald’s doesn’t accept credit cards but accepts cash and electronic money cards like Suica. Japan has the highest level of cash usage among all developed economies.
I found it pretty interesting that iPhones are very popular here. So retailers that accept Apple Pay in Japan include 7-Eleven, Family Mart, Aeon, Esso Mobil General, Uniqlo, and more.
However, a lack of global interoperability poses a challenge for foreign visitors as cash withdrawal is difficult. Some places don’t accept MA/Visa cards like Transit, so you will need cash. I saw merchants mostly swiping and not dipping the cards (chip-and-PIN is still not prevalent). I would strongly advise anyone coming here to bring cash.
The 2020 Tokyo Olympics is going to be the most important event in Japan for FinTech/payments transformation as the country will host visitors from around the world. Payment convenience and removing the existing issues for foreigners (heavy-cash dependence/credit cards are not accepted at many places) before the Olympics would be important.
Updated (2:00 AM EST, Sep 26): One such initiative, as reported by Nikkei, is that a host of Japanese banks are uniting behind a new digital currency they call J Coin; they are looking to fend off global e-payment players and amass a treasure-trove of consumer data. The consortium includes megabank Mizuho Financial Group and Japan Post Bank, as well as numerous regional banks. J Coin would be no more erratic than the yen (so volatility should not be a problem) since its value would mirror the Japanese currency. The banks intend to use the new currency to offer electronic payments and other services like commission-free remittances. They hope to counter the growing e-payments services of international tech giants like Alibaba Group Holding and Apple. J Coin is expected to be up and running by 2020 when the Olympics come to Japan.