Looser Rules May Spur Japanese Fintech Revolution

Japan’s Financial Services Agency is preparing legislation allowing the government to relax restrictions on fintech investment, promising a technological jolt to one of the world’s biggest financial markets.

The loosened measures will even include a central fintech support desk that banks can call for advice and information.

Under current rules, Japanese banks may not hold more than 5% in companies that are not direct players in the banking industry, and bank holding companies are not allowed to hold more than 15%. The new norms will boost those percentages, finally allowing banks to have IT subsidiaries.

The change has been hotly anticipated. While Japan may have invented Karaoke, the Walkman, Nintendo and Sony PlayStation, its banks have lagged behind those of the US and many other nations in developing digital products. Asian countries, including Singapore, Hong Kong, China and South Korea, have all provided both regulatory and market backing to encourage fintech growth.

Japan has the lowest usage of mobile banking among 18 nations analyzed in KPMG’s Mobile Banking report last year.

And Capgemini’s World Retail Banking Report 2015 says Japan’s banks scored lowest in customer satisfaction.

Bill Sullivan, head of global financial services market intelligence at Capgemini, says looser rules will allow Japanese banks to build or acquire their own fintech firms. He says a conservative culture resistant to change has held Japan’s fintech industry back. But consumers have grown more demanding, adding to pressures by the industry itself to revamp regulations.

“Providing optimization of costs and processes, the ability to have the systems and processes to compete in international markets and, most importantly, implementation of fintech will have a significant impact on improving customer experience,” says Sullivan.

Until now, banks have been mostly limited to moving more aggressively outside of Japan, investing in projects in other countries, Sullivan says. Sumitomo, for instance, owns a 40% stake in Indonesia’s Bank Tabungan Pensiunan Nasional, which offers mobile-banking services in rural areas. Individual investors followed banks overseas—allocating portfolios to fintech start-ups outside of Japan. But big Japanese banks have been setting the stage for the new and more open regime. Sumitomo recently launched an innovation department devoted to fintech. Mitsubishi UFJ Financial Group is also said to have developed a new unit to research and develop new financial technologies.

The banks themselves along with other investors are set to pour in. They “would probably be willing to invest more in the Japanese fintech industry, once the regulations are relaxed,” Sullivan says.

Soon they’ll have the chance.