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Japan’s fintech market is booming but people are still too happy with their banks


By Michael Tegos for TechInAsia

Japan’s relationship with fintech has blossomed in 2016, said Natalie Shiori Fleming during a keynote speech at Tech in Asia Tokyo 2016. Natalie leads US financial services companyPayoneer’s regulatory and banking infrastructure strategy in the country.

She is also part of the Fintech Association of Japan, an organization put together by local and international ecosystem players to fly the banner for financial technology startups.

“From January 2016 onwards, search interest in the term “fintech” in Japan has spiked.”

The association has grown from 10 people in October 2014 to 189 members today, including venture capital firms, corporates, and individuals. Fintech has similarly grown in Japan as companies started emerging and interest in the sector increased.

From January 2016 onwards, search interest in the term “fintech” in Japan has spiked, according to Google. More than that, the previous year saw investment flow into the sector to the tune of US$99 million.

Growth in the sector isn’t letting up anytime soon either. Natalie pointed to a report by research firm Yano ICT that expects local fintech market sales to grow ninefold in the next four years, from US$33.6 million in 2015 to US$563 million. Part of the growth, Natalie said, will come from the fact that there will be a lot more business-to-business startups, where so far there have been mostly consumer-oriented companies.

Barriers to growth

The road ahead isn’t without its challenges, naturally. But there are some interesting hurdles for fintech in Japan that set it apart from other markets.

Natalie started off with some straightforward ones, like the difficulty in attracting substantial funding in Japan. “It’s easy to raise US$1 million, it’s hard to raise US$10 million or US$100 million,” she said. That leads to a lot of companies going public just because they see no other way to fundraise on a large scale.

Tech in Asia Tokyo 2016 - Natalie Fleming on fintech in Japan

Natalie Fleming presents a snapshot of the Japanese fintech landscape. Photo credit: Tech in Asia / Michael Holmes.

Laws and regulations are also a problem that fintech faces in most countries it’s trying to grow in. Japan has taken steps forward, like recently legislating to regulate digital currency exchanges in the country and establishing a number of working groups involving the Bank of Japan and the Ministry of Finance. But there is still a lot of bureaucracy to get through in order to launch and grow a startup.

Lack of mobility in the workforce is another problem that Japan shares with other countries, including Singapore. “A lot of very smart people prefer to work for large companies where there’s stable work and a good salary versus working at a startup,” she explained.

But there are some problems that are unique to Japan.

“There is less dissatisfaction with traditional financial services than in the US and the UK.”

One interesting thing is that the Japanese are too satisfied with their banks. While “my bank works too well” isn’t a statement you associate with a problem, the issue there for fintech businesses is that there is less dissatisfaction with traditional financial services in Japan than there is in other parts of the world like the US and the UK. “[The Japanese are] less likely to want to look for a different service that will better meet their needs,” Natalie said.

Another issue is that although Japan’s GDP is counted as the world’s third highest according to the International Monetary Fund, 53 percent of Japanese assets are in the form of cash and deposits. There is a lack of financial literacy that hinders investment and makes it harder for fintech services in the wealth management and investment sectors to grow.

Still, the space is growing in Japan and more people are trying to unlock this notoriously insular market, through fundraising or through entrepreneurship. The Fintech Association of Japan will keep doing its part too. “[We’re] still a startup as we’re hitting our first anniversary, but we will continue to grow and support the expansion of the Japanese fintech ecosystem,” she concluded.

This comes from a keynote speech at Tech in Asia Tokyo 2016, our conference that took place on September 6 and 7.

First appeared at TechInAsia

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