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Innovation and tech

Japan prepares to join the fintech revolution

It is perhaps not surprising that Japan has been slow to join the global fintech revolution, given the deeply ingrained nature of its old-fashioned business culture. But 2016 saw a number of significant changes that have helped kick-start a national effort to foster fintech as Japan seeks to leave its economic troubles behind.

Last April, the Bank of Japan launched its FinTech Centre to “contribute to enhancing financial services and achieving sustainable growth of Japan's economy”. In the same month, Japan’s first fintech hub FINOLAB, based in Tokyo’s financial district, held its inaugural “growth hack seminar” to encourage innovation in the sector.

Then in May, new legislation lifted a blanket ban on banks owning more than 5 per cent of non-financial companies. Many of the biggest banks are now looking to invest hundreds of millions of dollars in fintech.

Japan certainly needs to play catch-up: while global investment in fintech ventures is booming, figures from Accenture show the level in Japan in 2015 was 3.3 per cent of that in China and 0.5 per cent of the level in the US.

But according to FINOLAB, Japan’s demographic and economic challenges provide strong incentives to change this. It says a falling and ageing population is encouraging greater openness, while negative interest rates have generated greater urgency for Japanese banks to diversify away from government bonds.

Some groups are looking to tap into this new mood. SBI Holdings, a financial group, raised a ¥30bn ($299m) fintech venture fund last year while Rakuten, the ecommerce group, launched a $100m fund to invest in the sector.

Innovation and ambition

A few Japanese fintech start-ups that have already attracted international attention highlight the shift.

When Metaps launched an initial public offering in 2015, it was the country’s best-funded start-up. It offers an online payment service called Spike through which merchants can process up to $10,000 of payments per month for free or unlimited payments for a fee. Founder and chief executive Katsuaki Sato has ambitions to do “everything that current financial institutions do” and make all payments free of charge and as easy as sending a text.

One aspect of Japan’s business culture is that young people have preferred to work for big companies, rather than take entrepreneurial risks. But a start-up called Freee could help change this by easing the burden of heavy paperwork for smaller businesses. Freee’s online accounting software can be used to track expenses, send invoices, manage payroll and national health insurance, automate other bookkeeping tasks and even help with tax paperwork. More than 500,000 companies have already registered and in future Freee wants to connect banks with its data to help small firms secure bigger loans.

The idea behind Zaim, Japan’s largest online household budget provider, was developed by CEO and founder Takako Kansai during her daily subway commute. The app enables anyone to keep track of their finances by connecting credit cards and bank accounts as well as scanning receipts with their phone’s camera and has around 5.5m users.

Ms Kansai says families use Zaim to share household finances and understand the repercussions of big financial decisions. She has spoken of her desire to change a Japanese taboo surrounding open discussions about money.

Shaping the future in T-shirts and jeans

New start-ups should now find it easier to get funding and support. Mitsubishi UFJ Financial Group (MUFG), one of the world’s leading financial groups, has its own fintech accelerator programme. Three of five start-ups selected for mentoring use artificial intelligence in their products.

Tatsuto Fujii, senior manager of the company’s digital innovation division, acknowledged that such companies could become competitors but added that his “primary goal is to join forces with these start-ups so that we too can provide upgraded services in the future”.

In a country where 52 per cent of personal assets are held in cash, he also believes fintech could unlock “dormant” savings by triggering “healthier competition for yield”. Mr Fujii expects financial services on smartphones and “robo-advisers” to create a new pool of investors. “People who have never considered investing before are starting to look into it,” he says.

This could indicate that the global power of fintech is starting to eat away at traditional Japanese conservatism.

Another such sign came when Taro Aso, deputy prime minister and minister of finance, appeared at a fintech summit involving a partnership between Japan’s Financial Services Agency and Nikkei, owner of the Financial Times, last September. Mr Aso described with pride how people in business suits now “work together with young people in T-shirts and jeans” giving rise to new ideas. That really could be a sign that Japan is ready for the fintech revolution.