Integrating Finance and Technology
for New Growth Opportunities
Remarks at the FIN/SUM 2019
Haruhiko Kuroda
Governor of the Bank of Japan
Introduction
I am delighted to be given this opportunity to speak to you at the FIN/SUM 2019.
The main theme of this year's FIN/SUM is "new sources of growth." The key to raising
economic growth is to stimulate potential needs and further provide goods and services
for which people are willing to pay. According to Schumpeter, firms need to make
innovation that leads to the introduction of a new good and the opening of a new market.
In recent years, there has been a growing interest in FinTech. It has been driven by the
dramatic evolution of information technology, but this is not the only factor. Financial
services that did not exist before have been created by information technology. As these
services have been met with high demand by the public and have begun to transform the
way of living, FinTech is drawing more attention.
Typical examples include financial services using smartphones. Smartphones are
palm-sized computers that enable cashless payments and internet banking services.
However, they are not just a payment tool. Integrating payment functions with digital
marketing and search functions helps create new demands, improving the convenience
of services. Smartphones enable us to pay train fares, pick up and pay for taxis, and
search for and purchase goods. Incorporating payment tools into a range of commercial
services provides new added value.
The Role of the Banker
Schumpeter is well known for highlighting the importance of innovation for economic
The Theory of Economic
growth in his book, Development. He also mentions the role of
the "banker" in economic development.
The process of "creative destruction," as defined by Schumpeter, begins with an attempt
by visionary entrepreneurs to innovate. Namely, they do so through the introduction of a
new good, the introduction of a new method of production, the opening of a new market,
the conquest of a new source of supply of raw materials, and the carrying out of a new
organization of any industry. The banker then evaluates entrepreneurs' potential and
provide finance to support their innovations, which facilitates economic development.
The banker searches for entrepreneurs who can create innovative businesses and select
the most promising ones. Competition among bankers to find skillful entrepreneurs
contributes to improvements in the efficiency of their operations, thereby increasing
their profits. Such behavior of the banker helps achieve efficient resource allocation
from a macroeconomic perspective, which endogenously enhances economic growth.
The banker discussed here is not confined only to the literal meaning of a banker. They
include investors such as venture capitalists who have an eye for assessing the
businesses and risks of startups. The role of capital markets, including stock and
corporate debt markets, would also be considered as the banker in a broad sense.
Moreover, FinTech firms have begun to partly play the role of what Schumpeter calls a
"banker" in recent years. Let me explain in more detail.
Taking Advantage of Corporate Payments and Commercial Information
As discussed, a range of commercial and financial services are now provided in an
integrated manner with smartphones. Commercial and financial functions are closely
linked and inseparable; this has not changed since the olden days. As banks used to
provide credit mainly by discounting commercial bills, lending services were essentially
incorporated into commercial businesses. That is, banks engaged in payment services
with access to commercial information, which enabled them to provide credit efficiently
to the economy. Given payment information is derived from commercial information,
the latter is more fundamental than the former. Clients' commercial information is the
key to better assessing their creditworthiness.
In other words, ensuring access to fundamental commercial information enables even
nonbanks to gain a competitive advantage in information production, and perform
financial intermediation functions. Indeed, FinTech firms, including accounting
software vendors, have started accumulating corporate commercial and payment
information in recent years. A chronic labor shortage in Japan has facilitated the
introduction of accounting software in the corporate sector to streamline the
bookkeeping process. With clients' consent, FinTech firms such as accounting software
vendors can access granular payment and commercial information in an efficient and
instant manner. In addition, artificial intelligence and machine learning technologies
help analyze data to assess clients' creditworthiness. A wider access to clients'
commercial and payment information by FinTech firms has led to the recent expansion
of transaction lending businesses.
Schumpeter describes innovation as "new combinations" in his original book. FinTech
firms have literally achieved a "new combination" as "entrepreneurs" by incorporating
accounting information processing, and credit information production, to provide
transaction lending services. This new combination helps establish efficient lending
frameworks that reduce costs for credit assessment, shorten screening processes, and
improve the performance of credit risk models.
In the meantime, meeting the demand for loans from clients is a challenge for some
FinTech firms that do not have sufficient funding sources. In this regard, financial
institutions can cooperate with FinTech firms by providing funding. This helps financial
institutions ensure new growth opportunities by finding new clients with whom no
business deal was previously made because of the profitability of the deal. These
initiatives also bring opportunities for startups and small and medium-sized enterprises
(SMEs) with insufficient collateral and guarantee capacity to expand their businesses. If
FinTech firms and financial institutions -- which have a comparative advantage in
information production and fund provision respectively -- work together to play the role
of the "banker," that could result in better financial services. This would be a good
example of new growth opportunities within the context of financial intermediation.
Conclusion
The Bank of Japan established the FinTech Center to facilitate the development of
FinTech in 2016, the year when the FIN/SUM first took place. The topic of corporate
payments and commercial data utilization, for example, has been discussed with a wide
range of experts at our FinTech Forum as well and we have released the insights and
perspectives gained from the discussion on our website. The Bank will continue to make
efforts so that better financial services and the creation of new businesses will lead to
economic growth.
In this year's FIN/SUM, we welcome a rich variety of participants, including those from
the financial and technology sectors. I sincerely hope that interactions between the
participants will lead to "new sources of growth" -- which is the theme of this year's
FIN/SUM.
Thank you for your attention.