My Vision No.55
2021.8Financing Smart Cities
How can financial institutions work to ensure that attempts to realize smart cities are fosteredinto long-running rather than transitory projects?

About This Issue

Financing the Smart City
- Funding for the Challenge of Urban Innovation Kazuhiro Higashi
Executive Vice President, NIRA／Chairman and Director, Resona Holdings, Inc.

Smart cities: an attempt to realize sustainable cities through the use of new technologies such as ICT.
Efforts in this area are underway in various parts of Japan. However, there is still no clear path tosuccess. How do we ensure that smart city projects are not merely transitory, and secure business
continuity and economic efficiency into the future? How should we address the challenges of financing
smart cities? How should financial institutions work to innovate cities? In this issue of My Vision, we
asked the opinions of Japanese and overseas experts in this area.
Keywords…Risks and challenges, well-being of residents, role of financial institutions, urban innovation

Expert Opinions

Financing Smart Cities
How should we address the challenges of financing smart cities?
What is the role required of financial institutions?

Make Public and Private Sector
Collaboration More Effective with the
Involvement of Financial Institutions

Seek Financing Methods Based on the
Characteristics of Smart Cities

Lance Kawaguchi

Hiroto Asakawa

CEO, Cure Brain Cancer Foundation

Chief Senior Consultant, Sumitomo Mitsui Trust
Research Institute Co., Ltd.

Keywords…Public-private partnership (PPP),
stakeholder understanding, time horizon, risk
underwriter

Keywords…Sustainable finance, monetization,technological risk, impact investing

Data & Finance: A Virtuous Circle

Become Coordinators of Cross-Industry
Collaboration

Daniel Stander

Takeharu Kikuchi

Special Advisor, United Nations

General Manager, Innovation Center, The Japan
Economic Research Institute

Keywords…Resilience finance, urban risk,
clarification of risk-return tradeoffs, hazard data

Keywords…Brownfield projects, consortium
coordinator, social impact bonds, performance-linked
public-private partnership

Local Financial Institutions Should Be
Central to Regional Management in the
Digital Age

Expand the Possibilities of Financial
Businesses Through Wide-Ranging
Utilization of Data

Shojiro Nakamura

Hideo Yamamoto

Accenture Innovation Center Fukushima Center
Co-Lead / Managing Director
Keywords…Opt-in method, City OS, CFO of regional
economy, digital regional currencies

Executive Manager, Digital Strategy Section,
Business Strategy Department, Financial
Segment, NTT Data Corporation
Keywords…Cashless payment, sensing finance,
trustworthiness of data

Interview period：June – July, 2021
Interviewer : Sosuke Suzuki（NIRA Research Coordinator & Research Fellow ）Editor: Reiko Kanda, Maiko Sakaki, Ayumi Kitajima and Tatsuya Yamaji. This is a translation of a paper originally published inJapanese. NIRA bears full responsibility for the translation presented here. Translated by Michael Faul.
Copyright Ⓒ 2021 by Nippon Institute for Research Advancement

My Vision No.55
2021.8About This Issue

Financing the Smart City
– Funding for the Challenge of Urban Innovation
The concept of the smart city seeks to realize more
efficient and sustainable cities through digitalization and the useof new technologies such as ICT. The realization of the smart city
is expected to offer one solution to the diverse problems faced bycities, including responses to climate change, and efforts in thisarea are underway throughout the world. However, the path tosuccess remains uncertain. The project to realize Masdar City in
the UAE, an advanced exemplar in this area, has been extended
significantly; Canada's Sidewalk Toronto project was cancelled. It
Kazuhiro Higashi
has been pointed out that neither project resonated with residents,
Executive Vice President, NIRA／
and the OECD and others have indicated that contribution to the
Chairman and Director, Resona
well-being of residents should be emphasized over the creation of
Holdings, Inc.
new economic opportunities. It is desirable for all parties concerned,
citizens in addition to the government and businesses, to agree in
their awareness of precisely what a smart city project is aiming towards.
In this issue of My Vision, we interviewed six experts in the field regarding their thinking
concerning the risks and issues associated with smart cities, in particular, from the financial
perspective, how to secure business continuity and economic efficiency. Another focus was the role tobe played by financial institutions in smart city projects advanced by public-private partnerships inJapan.

It Will Be Essential to Create Mechanisms for Financing
A city is a “commons”, a common area for use by citizens. While services for citizens will be
improved by making cities smarter, citizens will not directly pay for construction, maintenance andmanagement due to the fact that these are projects for the public good. The development of smart cities
is currently largely funded by government subsidies, but ongoing financing will be required in order toextend such projects across the longer period of decades to come. The risks and issues associated withsmart cities come into focus here, and it will be necessary to devise the means of overcoming these
difficulties.
Lance Kawaguchi, CEO of the Cure Brain Cancer Foundation, an expert who has been
involved with financial institutions for over 25 years and has been engaged in smart city projects
around the world, cites “PPP” (public-private partnership) as the framework best suited to therealization of smart cities. The desirable business model, as indicated by Mr. Kawaguchi, is as follows:
the initial funds are provided by the government, which absorbs the development risks, following which
it is possible to refinance using private financial institutions. A variety of companies then enter themarket and develop their businesses, creating an ecosystem that generates profits. Mr. Kawaguchi also
proposes specific ideas to assist in facilitating the involvement of private financial institutions, which
will serve as valuable reference points.
Hiroto Asakawa of Mitsui Sumitomo Trust Research Institute, Co., Ltd., who also writes about
investment methods for smart cities, introduces an investment fund created and managed by anAustralian asset management company. By forming business alliances with companies that excel in
specific technologies, the fund is able to cooperate with these companies to deal with “technologicalrisk,” the risk that a new technology that has been the subject of investment will become obsolete due
to technological progress. In addition, standardization of the services provided is another aspect of thisscheme. The deployment of standardized services in multiple cities has the potential to allow the
Editor: Reiko Kanda, Maiko Sakaki, Ayumi Kitajima and Tatsuya Yamaji. This is a translation of a paper originally published inJapanese. NIRA bears full responsibility for the translation presented here. Translated by Michael Faul.
Copyright Ⓒ 2021 by Nippon Institute for Research Advancement

My Vision No.55
2021.8
exploitation of economies of scale and improve profitability.
However, there are limits to such a scheme in isolation. How can the data collected by digitaltechnology be used to increase the potential for financing? United Nations Special Advisor DanielStander advocates a financing method that allows the terms of loans to be varied depending on risk
assessments based on urban disaster data. The use of reliable data in combination with a model thatmeasures the value of a city's resilience will drive investment and lending.
In the case of smart cities, it is likely that the connection between“who”(or“what”) and“how” will hold the key to financing.

Financial Institutions Should Play a Central Role in Realizing Smart Cities
Data utilization links residents, businesses, governments, and investors. The
digitalization-driven evolution of the region in which they are present can be pointed to as thefoundation for the cooperation between them. What is the role required of financial institutions insmart cities where such cooperation is the key to increasing value?
According to Takeharu Kikuchi of the Japan Economic Research Institute, who is also
professionally involved with a government-affiliated financial institution, financial institutions
should “become coordinators of consortiums that include multiple companies from different
industries and local governments, which will shape the businesses in smart cities”. Mr. Kikuchi
sees the role of financial institutions on this stage as adopting a business-oriented focus andconnecting companies across different industries.
Mr. Shojiro Nakamura of Accenture Co., Ltd., who is leading a smart city project in
Aizuwakamatsu City, also wants financial institutions to be involved in the operation of aregional platform for the collection and management of data with the consent of residents. He
would like financial institutions and local managers to be involved in the operation of the projectbased on its founding concept that residents and the community are the main actors, and also to
improve the project’s economic efficiency.
Hideo Yamamoto of NTT DATA Corporation offers recommendations from the perspectiveof the digitalization of financial institutions. He tells us that the role that financial institutions
should play in smart cities is, first, “to make cashless payment more widespread”. Mr. Yamamoto
points out that smart cities represent a unique opportunity to obtain regional data “en bloc”, andthat this could be the starting point for the creation of new businesses using data.
The proposals of each of these three interviewees expand the scope of the financial
industry beyond the traditional three major operations of banks: deposits, loans, and exchange.
Financial institutions have always been a part of their regions. They cannot make profits
independently, despite the decline of the regions in which they operate. They receive a special trust
precisely because they are a part of their region, and on top of this, they fulfill an “areamanagement” role precisely because they are the recipients of information regarding local
residents and local companies. Rather than viewing loans and investments in units of one
company or one project, with their entry into the arena of the smart city, financial institutions
should make the transition to viewing their regions as “citizens x areas x data”, and adopt a
concept of maximizing the degree of well-being of residents by increasing the value of all three ofthese elements.
The banking industry is on the brink of transformation into a financial services industry.
What is demanded of it is to take on the challenge of urban innovation without being bound by the
behaviors and frameworks that have hitherto been the norm for financial institutions.
Kazuhiro Higashi is a NIRA Executive Vice President, Chairman and Director, of Resona Holdings, Inc., and Chairman
and Director of Resona Bank, Limited.

Editor: Reiko Kanda, Maiko Sakaki, Ayumi Kitajima and Tatsuya Yamaji. This is a translation of a paper originally published inJapanese. NIRA bears full responsibility for the translation presented here. Translated by Michael Faul.
Copyright Ⓒ 2021 by Nippon Institute for Research Advancement

My Vision No.55
2021.8Expert Opinions

Make Public and Private Sector Collaboration More Effective with the
Involvement of Financial Institutions
Lance Kawaguchi is the Chief Executive Officer at Cure Brain Cancer Foundation and shares his
extensive knowledge in this article in support of smart cities globally. Lance has taken a career break fromthe Finance and Banking industry to focus on something bigger than himself, inspired by a promise hemade to his mother shortly before she passed away from cancer.
I have been involved with financial institutions for more than 25
years, working with projects seeking the realization of smart cities inlocations across Europe, Asia, and the Middle East. Based on my experience,
I believe that a public-private partnership (PPP) is the best approach to take.
In this framework, the government provides the initial funding, and thenmakes it possible to refinance via private financial institutions. A variety ofcompanies will then enter the market, develop businesses and generate
profit. Building this type of ecosystem is the desirable economic model forthe realization of smart cities.
Globally, there are strong examples of how the PPP/smart city
Lance Kawaguchi
model
works,
however it is important to identify that despite ample
CEO, Cure Brain Cancer
government
subsidies,funding alone is not enough to ensure success. A
Foundation
project will potentially fail if the parties involved are not on the same pageregarding what they are trying to achieve. In order to prevent a situation of this type from occurring, it isessential to ensure that all the parties concerned share a common understanding.
Successful smart cities rely upon two key points. The first is recognizing the time horizon. The
public sector may view projects as having a time frame of thirty to fifty years, while financial institutions
are interested in profits over two to three years. If financial institutions propose business improvement
measures and mechanisms are created in order to generate profits in a short time frame, the parties
concerned may have to meet in the middle.
The second, is a shared understanding (between the risk takers) as to who will take which specificrisk. The active participation of banks and private equity providers will be essential. The government will
shoulder the development risk and the private sector will then take the risk of developing profitablebusinesses. Rather than financing using a single bank, it would be wise to adopt realistic measures such as
forming a syndicate of multiple banks to diversify risks. In addition, it would be necessary to take the natureof contracts into consideration. Projects will run for a long time, and technology will evolve over the same
period. It will be important to ensure that contracts make it possible to review details, and in some cases
renegotiate or cancel the contract, in order to allow response to changes in these situations.
Locally, during my time in Australia I have noted that public awareness of smart cities is modest,
however it is an ideal location for investment. Australia’s population is predominantly anchored to coastaladjacent capital cities which support an efficient and connected network to reach a significant number ofpeople in a short timeframe. Additionally, there is easy-to-access operational infrastructure that can beutilised or improved to enhance IoT connectivity, providing investors with a usable base that may not be
available or as easily accessible in other countries. Finally, Australia has historically welcomed Foreign
Direct Investment (FDI) and offers a stable, strong, and regulated financial system and machinery of
government, contributing to a safe investing environment. There is a strong case for Australia to become aworld leader in smart cities and smart city technologies, and if encouraged by FDI, likely to be beneficial toboth Australian and global investors.
Ultimately, it will be necessary for financial institutions to not only pursue profitability, but also tomake a transition in their thinking, from a politically neutral standpoint, towards the fulfillment of theirsocial mission in improving urban sustainability and citizens' lives.
Mr. Kawaguchi has more than 25 years of experience in the global financial industry, including periods with Citigroup,
the Australia and New Zealand Banking Group, and HSBC. At HSBC, he was the Managing Director and Global Head
– Corporates for the company’s Global Liquidity and Cash Management division. A graduate of Indiana University
Bloomington, he is also the author of numerous articles studying the digitalization of the banking sector, looking at topics
such as open banking and smart cities. Mr. Kawaguchi is the winner of numerous awards honoring his efforts in the areaof racial and gender diversity, including the BAME 100 Board Talent Index. He has held his current position, as theChief Executive Officer of the Cure Brain Cancer Foundation, since 2021. Lance has revolutionised the Foundation’s
structure and culture, ensuring the organisation can work efficiently to unite the brain cancer community and increasesurvival and quality of life.
Editor: Reiko Kanda, Maiko Sakaki, Ayumi Kitajima and Tatsuya Yamaji. This is a translation of a paper originally published inJapanese. NIRA bears full responsibility for the translation presented here. Translated by Michael Faul.
Copyright Ⓒ 2021 by Nippon Institute for Research Advancement

My Vision No.55
2021.8Expert Opinions

Seek Financing Methods Based on the Characteristics ofSmart Cities
The realization of smart cities is one facet of
permanent urban development. In order to procure the funds
for the creation of smart cities, it would therefore be desirable
to combine transient funding, such as government subsidies
and private-sector donations, with ongoing mechanisms able
to provide long-term investments.
On the other hand, the digital technology that forms
the basis of smart cities and the business models that utilize it
are fields that are constantly advancing, meaning that even
Hiroto Asakawa
the new technology that we have invested in may become
Chief Senior Consultant,obsolete in a few years. Furthermore, projects like smart cities,
Sumitomo Mitsui Trust ResearchInstitute Co., Ltd.
which are highly public and display significant differencesfrom region to region, are generally difficult to “monetize”,
thus making it difficult to realize long-term investments and loans. And this is precisely why it isessential to seek financing methods that take into account these characteristics of smart cities.
Attempts to overcome these challenges have already begun. For example, an Australianasset management company has established and is managing a fund for investment in smart city
infrastructure development projects. Business alliances between companies that excel in a specifictechnology and funds enable the standardization of the services provided and their deployment in
multiple cities. Mechanisms of this type will make it easier for companies and funds to work
together in order to respond to technological problems and obsolescence (so-called “technologicalrisk”). The fund is investing in such businesses as optical fiber network installation in the UnitedStates, and will see a return on its investments over the long period of 10 years or more. This will
surely provide a useful reference for methods of overcoming issues such as technological risk.
Projects that are highly public but difficult to monetize can also consider the use of amethod of financing called “impact investing”. Impact investing focuses not only on the economic
returns, but also on the social and environmental effects resulting from investments, and is a formof investment that is rapidly taking root in Japan and overseas. And precisely because smart cities
are one facet of sustainable urban development, many businesses can be targets for impact
investment. In particular, local financial institutions, which have close ties to local communities
and are familiar with their issues, can ultimately play a major role through the use of this method.
Numerous smart cities will enter the stage of concrete social implementation from thispoint on. It will be desirable for financial institutions to participate in regional consortiums andsimilar working groups from as early a stage as possible in order to enable them to understandsocial issues specific to particular regions. In addition, this can be expected to contribute to theformation of “bankable” smart cities that make possible the long-term loans and investments thatare indispensable to solving those issues.
Mr. Asakawa is engaged in research and consulting related to areas including PPP and infrastructure investment at
Sumitomo Mitsui Trust Research Institute, Co., Ltd. Published in March 2021, “Research on Investment Fund Methods
to support Smart City Development” (in Japanese) is one of the rare reports that systematically investigates andresearches smart city financing methods. Mr. Asakawa joined Mitsui & Co., Ltd. in 1997. He has experience in domestic
and overseas project finance formation, infrastructure fund formation and management and other areas at the company.
He has been in his current position since 2020.
Editor: Reiko Kanda, Maiko Sakaki, Ayumi Kitajima and Tatsuya Yamaji. This is a translation of a paper originally published inJapanese. NIRA bears full responsibility for the translation presented here. Translated by Michael Faul.
Copyright Ⓒ 2021 by Nippon Institute for Research Advancement

My Vision No.55
2021.8Expert Opinions

Data & Finance: A Virtuous Circle
Cities are assets. They are solutions for and drivers of
economic and human development.
Smart cities are defined by their use of data. In short, theycollect data to enhance services to citizens.
However, all cities – smart or otherwise – are alreadyfiscally challenged. Indeed, most cities in the developing world
struggle to finance the infrastructure required to meet the basic
needs of growing populations.
This municipal financing gap reduces urban efficiency andthrottles economic activity. Budgetary shortfalls follow, creating a
Daniel Stander
vicious cycle that can choke urban conditions and stymie
Special Advisor, United Nations
socioeconomic development.
Factor in the potential impacts from climate-related shocks
and stresses, and cities, instead of being an asset in the fight for sustainable development, canthemselves become a sustainable development problem.
All is not lost, however. Data, the currency of smart cities, is also the currency of smart finance.
Just as a smart city collects data to surface insights that improve operations, so capital is motivated bydata-driven returns.
This shared interest in data presents an opportunity to reverse the cycle. Data becomes notjust the enabler of a smart city; it also enables smart municipal finance. And when the data being
collected informs stakeholders’ understanding of urban risk, #ResilienceFinance becomes possible.
In its vanilla form, this looks like the kind of parametric bondⅰ New York has repeatedlyissued to finance climate-resilient transportation in and around Manhattan. More innovative flavours,
which reward governments for their investments in measures that reduce risk, were pioneered
following the 2017 hurricane season. They include the four instruments that were designed by the UK
Government in 2018 and taken forward by Lloyd’s of London in their report on innovative finance forresilient infrastructureⅱ. UNDP reviewed progress in 2020, citing three case studies the demonstrate
how private investment can shape climate-smart and sustainable cities.
The success of such instruments to finance municipal resilience is predicated on theavailability of high-resolution, accurate and objectively verifiable hazard data from sensors. When suchdata is consistently captured and responsibly disclosed, cities can unlock access to new instruments
and new investors – not to mention develop risk-informed plans and garner favour from credit rating
agencies.
Of course, sensor data alone does not suffice. Trusted data needs to be married with forwardlooking analytical models that can effectively price risk and value resilience in the Anthropocene.
Technical capacity also needs to be built – and inadequate regulatory frameworks need to be reformed.
But it all begins with ‘truth data’. When cities invest in data collection and enabling
environments, they can not only improve their services to citizens, they also clarify the risk-reward
tradeoffs in ways that bring over-capitalized investors to the table.
There is no single financial product that will close the municipal funding gap. But data-driven
cities are more likely to deliver climate-resilient services and attract funds.
In other words, smart cities and resilience finance are mutually reinforcing. Together, theystimulate a virtuous cycle of growth and prosperity. Properly embraced, they will help cities standstrong even when things go wrong.
Catastrophe bonds, a type of risk-linked security, are structured debt instruments designed to raise moneyin the event that a predetermined disaster occurs. Parametric cat bonds are structured around the numericalvalues of physical phenomena, such as the wind speed of a typhoon or the depth of a flood at specified
locations, rather than the actual sum of the loss incurred from an event.
ⅱ
LLOYD’S（2018）innovative finance for resilient infrastructureⅰ

As a special advisor to the UN, Mr. Stander focuses on risk and finance. He is a pioneer in the field of resilience finance,
finding responsible investments in the face of climate change and potential disasters. Mr. Stander is the Deputy Chairof the Resilient Cities Network, and was formerly Global Managing Director of Risk Management Solutions. He holds a
Master’s degree from Oxford University.
Editor: Reiko Kanda, Maiko Sakaki, Ayumi Kitajima and Tatsuya Yamaji. This is a translation of a paper originally published inJapanese. NIRA bears full responsibility for the translation presented here. Translated by Michael Faul.
Copyright Ⓒ 2021 by Nippon Institute for Research Advancement

My Vision No.55
2021.8Expert Opinions

Become Coordinators of Cross-Industry Collaboration
Smart cities are initiatives that seek to improve the levelof citizens’ well-being using data. The fields treated in smart city
initiatives cover a wide range, including regional transportation,
medicine and welfare, energy, waste, and disaster prevention.
Some of these involve equipment and facilities, and some do not.
“Greenfield” projects, which create a new site and develop
infrastructure from scratch, require an enormous amount of funds
from the beginning. However, in Japan, there are many
Takeharu Kikuchi“brownfield” projects, which attempt to enrich lives using IT and
General Manager, Innovation
data in sites in which people already live. At the initial
Center, the Japan Economic
Research Institutedemonstration stage, these projects are usually financed bysubsidies or self-financing by core companies; many projects inJapan are still at this stage. When the stage of commercialization and implementation involving
constructed facilities is reached, it will be possible to seek funds from financial institutions.
But this does not mean that financial institutions have no role to play at present. They
actually have another important role to play. What financial institutions should do is to become
coordinators of consortiums that include multiple companies from different industries and local
governments, which will shape the businesses in smart cities. Local governments can play
important roles such as providing explanations to residents, but they are poor at creating businessmodels. Combining ideas and thinking about how to turn them into a business is the forte offinancial institutions. The local connections and information that financial institutions possesscome into play here. The situation may be chaotic and some time may be required in the earlystages, but once the project has taken overall, this approach will lead directly to the provision of
long-term finance.
“Social impact bonds” are attracting attention as a financing method that has goodcompatibility with smart cities. Against the background of increasingly complex social issues andincreasingly severe constraints on public-sector finances, this is a result-linked public-private
partnership method in which dividends are paid to the providers of funds depending on the resultsa business produces. As KPIs (Key Performance Indicator, indicators for evaluation) that measure
results, items are set for which data can be obtained, for example the completion rate of healthguidance programs for reducing the number of diabetic patients. Currently, there are still not
many projects as such, but the participation of financial institutions in all aspects, including
determining the applicability of this scheme, cooperation with local governments and the national
government, and investment, will be required. As a means of responding to social demands, it willbe essential for financial institutions to actively participate, accumulate expertise, and support
the creation of truly sustainable mechanisms at the stage of commercialization of smart cities.
Mr. Kikuchi is working to create opportunities for open innovation (iHub) and is involved in the planning of smart cities
at the Japan Economic Research Institute. He also serves as the Manager of the Innovation Promotion Office of theDevelopment Bank of Japan’s Business Planning and Coordination Department, working to support new businesses
through the provision of funding and consulting. Prior to taking his current position, Mr. Kikuchi was Manager of theDevelopment Bank of Japan’s Environmental & Social Evaluation Office, was seconded to the PFI Promotion Office of
the Cabinet Office and the General Environmental Policy Bureau of the Ministry of the Environment, and was a Deputy
Manager of the DBJ’s Kansai Branch. Mr. Kikuchi is also well-versed in the field of green finance. A graduate of The
University of Tokyo, he completed a Master's degree in environmental management at Oxford University.

Editor: Reiko Kanda, Maiko Sakaki, Ayumi Kitajima and Tatsuya Yamaji. This is a translation of a paper originally published inJapanese. NIRA bears full responsibility for the translation presented here. Translated by Michael Faul.
Copyright Ⓒ 2021 by Nippon Institute for Research Advancement

My Vision No.55
2021.8Expert Opinions

Local Financial Institutions Should Be Central to
Regional Management in the Digital Age
One factor in smart city initiatives is whether they areable to generate valuable data in their particular region.
Anonymous data, such as data concerning flows of people, does
not generate monetary value, no matter how much of it there
is. The data that creates value is the data that identifies the
behavior history, purchase history, health information, andhousehold energy use information of each local resident.
Connecting data from multiple fields related to individuals’
Shojiro Nakamura
lives across sectors enables useful services to be provided.
Accenture Innovation Center
The prerequisite for building up valuable data is
Fukushima Center Co-Lead /Managing Director
sympathy among citizens for the concept of smart cities andtheir clear consent for the utilization of their data (i.e., use ofan “opt-in” method). The Smart City Aizuwakamatsu project that we are involved in in Fukushima
Prefecture’s Aizuwakamatsu City comprehensively implements an opt-in system under whichdata is utilized for the development of the region and its industries based on the desires of thecity’s residents. Operationalizing data obtained with the clear consent of the citizens via a regional
platform called “City OS”, we are able to provide services to citizens in numerous areas including
healthcare and cashless payment. We are thinking that we would like financial institutions andlocal managers to be involved in the operation of the project based on our concept that residents
and the community are the main actors, and also to improve the project’s economic efficiency.
Aizuwakamatsu City’s “City OS” is operated by a local management corporation, and the service
that acts as a DX for the city administration utilizes contributions. If we establish a 20- to 30-year
long-term infrastructure fund, it should lead to stable and continuous operation.
We would also like financial institutions to play the role of CFO (Chief Financial Officer)of the regional economy. SMEs, including startups, lack CFOs. In particular, we want regionalbanks to use digital technology in order to provide a variety of financial advice to SMEs incooperation with IT companies.
In addition, we would like financial institutions to take initiatives in the area of cashless
payment. Unless we achieve 100% cashless payment, the region will not be fully digitalized.
Currently payment service providers offer services; fees are high and there is a time lag for cashing,and cashless payment is therefore not progressing. To solve these issues, it will be necessary to
introduce digital local currencies, and the participation of banks will be essential to this.
After joining Accenture in 2011, Mr. Nakamura was appointed the Lead the Accenture Innovation Center Fukushima
Center, which was established to assist in the reconstruction of Fukushima Prefecture and Tohoku following the Great
East Japan Earthquake. He moved his residence to Aizuwakamatsu City in order to provide reconstruction support.
From 2014, Mr. Nakamura shifted his focus from reconstruction to regional revitalization in order to promote the regional
revitalization. Advocating a concept of decentralization as opposed to the concentration of the population in metropolitan
areas, he has nominated Aizukawarazu City as a demonstration area. He is promoting projects that seek to realize smart
cities and regional revitalization through a digital transformation, and working to create a regional revitalization model
based on Aizuwakamatsu City and to expand successful cases nationwide.

Editor: Reiko Kanda, Maiko Sakaki, Ayumi Kitajima and Tatsuya Yamaji. This is a translation of a paper originally published inJapanese. NIRA bears full responsibility for the translation presented here. Translated by Michael Faul.
Copyright Ⓒ 2021 by Nippon Institute for Research Advancement

My Vision No.55
2021.8Expert Opinions

Expand the Possibilities of Financial Businesses
Through Wide-Ranging Utilization of Data
The role that financial institutions will be required
to play in the advancement of smart cities will be, first, tomake cashless payment more widespread. For financial
institutions, smart cities represent a unique opportunity forthe collection of payment information in a region en bloc, as
digital data. This is an opportunity that must not be missed.
With the rise of payment service providers, it has become

Hideo Yamamotodifficult for banks to obtain household expenditure

Executive Manager, Digital Strategy
Section, Business Strategy
Department, Financial Segment,
NTT DATA Corporation

information that was previously available to them,information on how much each household spent and on what,for example electricity, gas and water. Having access to thisinformation again will allow banks a better understandingof their customers. This applies not only to individuals but also to corporations. The basic story ofbusiness development is to acquire local payment information and then to utilize it for marketingor in a new business.
We are proposing the use of “sensing finance” to allow financial institutions to develop
their businesses through the utilization of a wider range of data. This involves increasing thesophistication of conventional financial products and services by utilizing new data. If the target
company was in the manufacturing industry, smart meters would be used to acquire data
concerning electricity usage, allowing estimation of the operating status of the factory, for example.
Based on this data, it is possible to predict the performance of the company, change the lending
interest rate, and adjust the loan repayment method. In the case of small businesses, if water andelectricity usage data can be obtained, the daily operating status of the business can be monitored
at low cost, making possible low-interest loans.
A startup company called Global Mobility Services is developing a business involving
the provision of loans based on data. The company operates mainly in Southeast Asia, but has alsocommenced offering its services in Japan. When a customer takes out a loan to buy a car, thecompany attaches a special device to the vehicle. This device can acquire customer behavior data
and, if the loan repayment is delayed, immobilize the vehicle, allowing it to be repossessed. It is abusiness model that mainly targets the poor, and it will make it possible to provide loans to people
and companies that were not previously eligible for financing. However, given that some customers
may manipulate data to commit fraud, measures will be required to maintain the trustworthinessof the acquired data.
At NTT DATA Corporation, Mr. Yamamoto contributes to increasing the sophistication of data management in financial
institutions. He has made numerous proposals regarding the future image of finance based on broad-ranging knowledgeof fields including IT grand design and the utilization of big data. Mr. Yamamoto is the creator of the new term “sensing
finance”. He is responsible for the financial edition of “NTT DATA Technology Foresight”, which brings together trends
in technology, and he also disseminates information on IT trends as this area of advanced technology relates to finance.
Mr. Yamamoto is a graduate of Keio University.
Editor: Reiko Kanda, Maiko Sakaki, Ayumi Kitajima and Tatsuya Yamaji. This is a translation of a paper originally published inJapanese. NIRA bears full responsibility for the translation presented here. Translated by Michael Faul.
Copyright Ⓒ 2021 by Nippon Institute for Research Advancement