haruhiko kuroda : innovations in payments and fintech – the central bank ’ s perspective remarks by mr haruhiko kuroda, governor of the bank of japan, at the forum on payment and settlement systems, tokyo, 17 march 2016. * * * introduction it is a great pleasure to welcome you all today to our forum on payment and settlement systems. i. innovations in payments and fintech recent years have seen a number of developments in financial services, including in the area of payments. innovations that combine finance and new technology, called “ fintech, ” have become a particular focus of attention. it is clear that there are both supply - side and demand - side factors behind such developments. on the supply side, the advance in technological innovations related to information and communications is progressing. the processing power of computers continues to grow rapidly, and computers can analyze huge amounts of data – that is, “ big data ” – in a relatively short period of time. there has also been a rapid spread of forms of infrastructure such as the internet and mobile terminals, which are easily accessible to a wide range of people. in other countries – particularly in emerging or developing nations where existing financial services provided by banks have not penetrated sufficiently – new services such as mobile payments are generating large expectations in terms of “ financial inclusion ” – or the promotion of access to financial services. on the demand side, globalization of the economy continues to progress, and more and more transactions are being made across borders as well as time zones. new forms of economic activities have arisen both here and abroad – such as “ e - commerce ” and the “ sharing economy ” – while lifestyles have diversified. reflecting such developments, the needs for financial services are growing increasingly diverse and complex. for example, there is an emerging need for payment methods that are compatible with internet shopping on weekends or at midnight as well as low - value cross - border remittances. there is also a growing need to use forms of information associated with payments by utilizing loyalty cards. as i just pointed out, we can judge that there are factors on both the supply and demand sides which are affecting developments in fintech. if we consider that the financial business has strong characteristics as an “ information industry, ” then it is not surprising that developments in information technology have a large influence, especially in finance. for example, credit, investment, and risk management are based on the accumulation of a great deal of information and analysis in which new technology has

in a global context. the recent rise takes place against the background of an increase in financial assets supported by middle - east petrodollars and a growing number of muslims seeking to have their assets managed under religious tenets. an equally important factor that propelled growth in islamic finance is recent advances in financial technologies, namely, structured finance. the islamic finance industry has been able to introduce a scheme of profit sharing instead of prohibited interest payments. this has led the way to the development of a range of financial products, including the islamic bond, or sukuk. islamic finance brings greater diversity the development of islamic finance brings diversity to financial markets and financial transactions. when market players with different sets of values enter a market, they increase the variety of financial transactions, which in turn promotes financial market development and creates business opportunities. at the same time, it has a positive effect on the real economy through more efficient resource allocation. against this backdrop, i have a keen interest in what kind of new financial services islamic finance will provide in the future. to date, islamic finance institutions have provided many products that replicate those of conventional finance while respecting islamic values, where interest, or riba, is prohibited. in other words, islamic financial institutions have successfully provided conventional intermediary functions by utilizing the latest financial technology. i look forward to seeing further developments which will enable islamic finance to carry out new functions that conventional financial instruments can not serve. such innovation will improve the allocation of resources, while operating in accordance with islamic values. there are of course a variety of conventional transactions, but basically, all are a combination of two factors, risk and return. islamic finance is expected to offer further possibilities to finance by adding a new dimension to risk and return, which is islamic values. an example would be the development of microfinance under a framework that places great importance on islamic values such as fairness and equality of social economy and business partnership. islamic finance that offers a broad range of products and services is also important from the perspective of financial market and financial system stability. in principle, in a time of stress, a market with diversified participants and transactions is robust compared to a market of homogeneous participants and limited types of transactions. since the asian currency crisis, asian countries have been striving to create diversity in the source of funds, including bonds, instead of relying heavily on banks. i believe that the growth of islamic finance will also contribute to resolving these problems. challenges ahead islamic finance is making impressive growth and is expected to