MyVision

No.15 2015.11

FinTech :A Revolution
in the World ofFinanceFusing financial services and IT, FinTech is on the rise, and is spurring the successive appearance of new services based on groundbreaking technologies in
the financial sectors of the U.S. and Europe. Japan has lagged behind in thisarea, and it will be essential for the nation’s financial sector to respond to thisnew trend, with consideration of financial services as a public good. What needs
to be done to spur the diffusion of FinTech-based services in Japan?

CONTENTS
Expert Opinions

How can We Promote the Use of FinTechin Japan?
Mobile technologies will bring thegreatest change in the history ofﬁnancial services

Promote innovation in BtoB
services, which remain a bastion ofbanks

Country Manager Japan, PayPal Pte. Ltd.

Senior Managing Director & Member of the Board,
Sumitomo Mitsui Banking Corporation

Elena Wise

Jun Ota

Realizing safety, security and higher
Cooperation between industry,
added value through technology
government and universities
Yuka Koga
Vice President, Producing Division, Financial & Payment and dialogue between theServices Company, Yahoo Japan Corporation
technological and legal sides willFinancial institutions must take up be important factors
Tetsuo Morishita
the challenge of FinTech
Naoyuki Iwashita

Head of Center for Advanced Financial Technology,Bank of Japan

About this Issue

Yuri Okina

Professor of Law, Sophia University Law School

Expert Opinions

How can We Promote the Use of FinTechin Japan?
The use of information technology is generating dramatic changes in financial services. How will Financial
Technology, or FinTech, change our lives and the world of finance? What are the issues for Japan inpromoting the use of FinTech? In this issue of, we ask the opinions of representatives of a U.S.
venture company which pioneered the application of FinTech, an IT company which has recently newly
entered the same field, a Japanese mega-bank, and the Bank of Japan, in addition to a scholar in the fieldof finance law.

Interviewer: Yuji Hayashi, NIRA Senior Researcher
Editor: Kazuyoshi Harada
Period of interviews: June - August 2015

Mobile technologies will bring the greatest
change in the history of financial services
Elena Wise

Realizing safety, security, and higher added
value through technology
Yuka Koga

Country Manager Japan, PayPal Pte. Ltd.

Vice President, Producing Division, Financial & Payment Services
Company, Yahoo Japan Corporation

One of the reasons why PayPal [a major online payment service] has been
adopted globally is trust. When you use PayPal to pay for things, card
information is not shared with merchants, meaning that even if themerchants are hacked, people using PayPal are safe from leaking
information. PayPal also provides enhanced twenty-four-hourcustomer support available in 20 languages, in addition to fraud
detection and prevention.
The Japanese have a strong fear of fraud, both in physical retail andonline. I believe Japan is still a very cash-based society. If we takea look at credit card usage, which is a basic form of digital payments,adoption is low in Japan compared to the US or South Korea.
Building trust in digital payments is the key. The take-up of digital
payments or any other FinTech services in Japan will be about
how we can provide customers with comfort and trust, enabling themto feel safe and secure using the service.
In the next three to five years, we will see more change in thefinancial services industry than we have seen in the last 20 to 30 years. I
believe mobile will be driving the biggest change in financial services history. Mobile is said to be the fastest mass adoption of atechnology in history. There are already 7.2 billion mobile devices
today. With PayPal, mobile was only 1% of all transactions in 2010, it
is now 30% in 2015.
Mobile is becoming the big disruptor, and is already having amajor impact on our lives, our jobs and the economy. When you look at all of
the services that are disrupting very traditional industries, like Uber(taxis) or AirBnB (hotels), these tech start-ups are all mobile-based. We
believe payments will migrate to mobile. Money will become
digitized, and physical wallets will be relegated to the past. ■Ms. Wise is Country Manager, Japan, for PayPal Pte. Ltd, one of the world’s leading
Open Payments Digital Platform and a pioneer in the field. She took up her present position in 2013, after having served as Head of Merchant Services for PayPal Australia. Ms.
Wise was previously Vice President, BtoB, Asia Pacific and Japan for American Express.

Payment services were previously mainly the preserve of banks andcredit card companies, but a variety of new players have now entered the field.
For example, Yahoo! Japan’s auction site offers a simple mechanism for card
payments without any necessity for vendors and bidders to exchange
personal information. We also offer a payment service that can be used onother sites in addition to Yahoo! Japan sites.
The drawback of payment mechanisms of this type is that it isdifficult for users to know what is happening when they use theservices. When a user purchases an app on their smartphone, forexample, they are almost completely unaware of the mechanisms atwork behind the scenes of the payment. Given this, it is generally hopedthat the feeling of safety and security offered to users by their trust inbanks and credit card companies will in future be realized by the “tech”
aspect of “FinTech.”
In actual fact, the use of technology makes it possible to realize
greater security. For example, when a diverse range of devices areconnected via the Internet of Things (IoT), it will be possible toobtain historical data concerning peoples’ daily activities. Using theselife-logs, we will be able to analyze patterns of regular and illicit
activity, increasing our ability to detect illicit activity.
This technology will not only detect illicit activity, but will also enablecredit checks to be performed when lending, and could make itpossible to extend services similar to the generous “private services”
currently only offered to certain investors to a greater number of people.
Ensuring safety and a feeling of security for users while attempting to add value will be the key factors in payment and financial services from this point on. ■Ms. Koga heads the department of Yahoo! Japan responsible for planning payment, finance, and ID services. She is currently a member of theWorking Group on Payments and Transaction Banking of the Financial
System Council (Financial Services Agency).

My Vision No.15

Financial institutions must take up
the challenge of FinTech
Naoyuki Iwashita
Head of Center for Advanced Financial Technology,
Bank of JapanThe term “FinTech” refers to the provision of new solutions in the fieldof finance by IT venture companies. New business models arebeing created one after another, particularly in the area of BtoC
services using the Internet. The major difference between these new
businesses and traditional finance companies is their thinking regarding IT investment.
The computing centers and information systems (communicationlines, information terminals, etc.) that financial institutions haveestablished up to the present have been uniquely created by theinstitutions, and their construction, maintenance and management hasinvolved enormous expense. Financial institutions have prioritized theprovision of standardized services based on law and safe and stable
operation. As a result, despite the fact that the information society has
arrived and user needs have changed, they have not been able torespond in a timely fashion.
FinTech, by contrast, makes it possible to employ users’ terminals andresources available on the Internet to establish businesses extremely cheaply. This enables venture companies to test diverse new ideas,
irrespective of the systems in place or the prevailing businesspractices. Not all of these ventures succeed, but they contain thepotential to produce and spread novel technological innovations which
would not previously have been considered, thus generating significant change.
Of course, it is essential that we work to maintain safety andstability in the financial systems that support the functioning of thenational economy. However, giving consideration to the ability torespond to users’ needs, it will be essential for traditional financial
institutions to learn about FinTech and challenge themselves torealize innovation with a sense of urgency. It is very much to be hopedthat the interaction between FinTech and financial institutions willproduce a richer range of customer services. ■Mr. Iwashita is the Head of the Bank of Japan’s Center for Advanced Financial Technology, which provides support for financial institutions inincreasing the sophistication of their risk management and business administration. With close attention to convenience, security and cost, Mr.
Iwashita and his department seek a vision of the future of finance thatmakes strategic use of information technology.

Promote innovation in BtoB services,which remain a bastion of banks
Jun Ota
Senior Managing Director & Member of the Board,
Sumitomo Mitsui Banking Corporation
Japanese banks are lagging behind in the area of FinTech forseveral reasons. One of these is that the obverse of the banks’ rigorous management of accounts and commitment to the provision ofsocial infrastructure through the construction of safe and robust
payment systems is a lack of vision with regard to increasing
convenience for their users. Another factor is the restriction of banks’duties by the Banking Act, generating an environment in which it isdifficult to create new businesses.

However, high-volume BtoB payment services will remain abastion of banks into the future. BtoC services are the main area of
FinTech activity at present. The economic scale of BtoC in japan isno more than 300 trillion yen per year; the figure is 1,000 trillion in thecase of BtoB services. Without a highly robust and convenientsystem in place in the BtoB area, you will have no chance ofwinning out in global competition.
As banks, our role is to evolve more convenient platforms andoffer the businesses which are our customers more sophisticatedpayment services, while further increasing the safety that has beencultivated over years of operation. The development of FinTech does
not mean the end of bank accounts. FinTech has taken the lead in terms ofconvenience, but safety and stability may represent issues. One can send
10,000 yen by smartphone without worry, but sending one billion yen isanother matter.
SMBC’s recent conclusion of a partnership contract with a Silicon Valley venture capital firm is an attempt to borrow the talents of adiverse group of people in order to create new products and services
via open innovation. Products and services utilizing new technologies will not only represent resources for the bank. The ideal would befor the company to increase its discernment in the area of leading-edgefinancial technology, and to commercialize the technology in the form of anin-house venture. ■Also a Director of the Sumitomo Mitsui Financial Group, Inc., Mr. Ota hasfor many years headed a department dedicated to enhancing payment
services business for the Sumitomo Mitsui Banking Corporation, a financial institution which is actively promoting FinTech initiatives.

Cooperation between industry, government
and universities and dialogue between
the technological and legal sides will be
important factors
Tetsuo Morishita
Professor of Law, Sophia University Law School
The diffusion of FinTech has the potential to change the standing thattraditional banks have possessed up to the present. Payment is not the
only area which might be revolutionized by technology-based financial transactions; the potential extends to areas including
lending, the operation of funds, securities and the provision of financial advice. The use of technology can even be considered in the fieldof financial supervision.
Throughout the world, governments are aware of the magnitude of
FinTech’s impact, and are actively pushing ahead with related initiatives. A report recently published in Britain, for example, outlines avision in which the nation leads the world in the development ofFinTech, and stresses the importance of cooperation between
government, business and researchers, with consideration of an
appropriate balance between potential risks and returns, in its realization. Initiatives based on cooperation between industry, government and academia will also be important in Japan, and we shouldbe establishing forums for consultation and cooperation towards theformulation of action plans and the resolution of the issues that will arise.
It will be essential to boldly take up the challenge without being afraid of acertain amount of mistakes.
FinTech also raises a number of issues related to financial rules. It
will be necessary for practitioners and scholars to urgently combine theirefforts and extend the scope of their discussions. Technology evolves
at an incredible pace, and new technologies succeed one another evenover the course of a mere five years. To enable us to respond to change of this
rapidity, it will be more practical to guide the outcomes that we seekon the basis of general principles rather than formulating detailed rules. In
order to protect what should be protected and consider the essential
direction for rules and enforcement in response to risks while
avoiding excessive regulation, we will need to promote closer dialogue than is normally the case between those involved in theformulation of rules and those involved in the development ofbusiness and technology. ■Professor Morishita conducts research in areas including the harmonization of public and private law in the field of financial law and the systematization of international transaction law. He is currently chairperson ofthe Working Group on Payments and Transaction Banking of the Financial System Council (Financial Services Agency).

This is a translation of a paper originally published in Japanese.
NIRA bears full responsibility for the translation presented here.
Translated by Michael Faul.

About this Issue

FinTech: A Revolution in the World of FinanceIn 2014, Jamie Dimon, the CEO of JP Morgan Chase
Bank, warned that companies like Google and Facebook
would be the bank’s future rivals. The diffusion of smartphones and other mobile terminals on a global scale has
spurred the rapid growth of phenomena such as mobile payment services and peer-to-peer lending. In addition to Googleand PayPal, a large number of new players are entering thisdeveloping business area, and competition between new services is fierce. As the traditional providers of payment services, banks are viewing the advance of FinTech with considerable unease.
Aware of the limits of self-sufficiency, banks in Europeand the U.S. are actively promoting open innovation, for example through investment in IT companies, and are alreadyengaged in initiatives including the provision of electronic
trade services (virtual malls, etc.) and services offering theability to make payments via multiple devices, includingsmartphones.
In Japan, by contrast, while there are moves in this direction - for example, the Rakuten Group operates a virtual
mall, and provides financial services through its bank, andYahoo! Japan and other non-financial businesses are also actively developing financial services businesses - the scale re-mains limited. Traditional banks have not yet put responses
into effect, and the necessity of establishing the appropriate
business environment is still under discussion.
In this issue of My Vision, we have sought opinions regarding the relevant issues from representatives of businesses
at the leading edge of FinTech both in Japan and overseas,senior officials of a Japanese megabank and the Bank of Japan, and a leading academic in the field of financial law. Ourinterviewees in this issue share an awareness that technological innovation moves at an extremely rapid pace, and financial businesses are facing a period of enormous change. In
addition to further advancement of security technology, they
see the establishment of a ﬂexible regulatory system able torespond to the speed of technological innovation as essential
to broadening the range of financial services in line with userneeds. Allowing a diverse range of entities to compete in theprovision of a wide variety of services, FinTech has the potential to significantly change norms in the financial industry,
and to increase the convenience of our daily lives. The futureof this technology merits close and interested scrutiny.
Yuri Okina, NIRA Executive Vice President(Vice Chairman of the Japan Research Institute, Limited)

National Institute for Research Advancement (NIRA)
4-20-3 Ebisu, Shibuya-ku, Tokyo 150-6034, Japan(URL: http://www.nira.or.jp/english/)(Facebook: https://www.facebook.com/nira.japan)
For more information : info@nira.or.jp
Tel +81-3-5448-1710
Fax +81-3-5448-1744
Copyright Ⓒ 2015 by National Institute for Research Advancement