It is a little-known fact that Japan has embraced the notion of open banking, having been inspired by the European Payment Services Directive. In fact, not only has it embraced open banking, it is storming full steam ahead with it. And while an open banking ecosystem has not been mandated in Japan, the banks there are responding as if it had been. If we thought banks had a dire customer interface here in the UK, or anywhere for that matter, those of Japan’s banks were even worse. Yet they have adopted open APIs as a way to overcome this.
More than 100 banks will open APIs in Japan in the next few years. In the last two years, 12 have opened up their systems, and by 2020, 110 banks will have done so. The government KPI is 80 (the numbers in Britain, and indeed Europe as a whole, somewhat pale in comparison).
“When the Japanese make up their mind, they move fast,” said Toshio Taki, board director, Money Forward, a Japanese financial account aggregator that visualises financial data and touts itself as the PISP and AISP of Japan. Japanese banks do not have GDPR to contend with either, leaving them one less can of worms to contend with, if indeed it is to be believed that GDPR updates present as much of a challenge to banks as they might have us believe. Possibly more an excuse to heel-drag their way into the open banking era.
A cash-reliant market is always a keen stifler of fintech innovation, and Japan has traditionally had a heavy one. In a bid to embrace the opportunities fintech can bring about, however, the government has imposed a target of achieving 40% cashlessness by 2020 (from 20%), driven in large part by the Olympics in the same year.
Japan is also a largely untapped investment market and there has been a raft of roboadvisors for the retail investor market (much like the UK’s Nutmeg). It wouldn’t be unfair to say that Japanese consumers are ripe for learning about and taking control of their finances, more than ever before, and given that it ranks third highest in the world for individual assets, most of which are fixed inside deposits, it is a perfect storm for retail investment services, which in turn will fuel the fintech explosion.
The Japanese government changed the banking act two years in a row- usually this happens every five or six years as they like to take their time analysing all the various implications of any change- but currently they are on a roll and momentum is in overdrive. Non-financial companies can now receive 5% investment from banks to enable fintechs, which wasn’t the case before.
Very positive action is being taken to reform the Japanese banking infrastructure to make it more open, and obviously so, to foreign players. Government-affiliated JETRO (Japan External Trade Organisation) is currently on a mission and a half promoting trade into Japan of the fintech variety, and the UK is top of its list- a shrewd endeavour in light of the farce that is Brexit? Perhaps, but we won’t say cynical, because this kind of reach-out comes about as unwelcome as soft snow in hell.
Japan also attracts cryptocurrency talent. There is a strong culture of tech innovation in Japan, lest we forget. Before Apple and Facebook came along there was already a very strong UX culture embedded in consumer services, as well as high spec smartphones. And even in contactless, Japan proved to be well ahead of the game when Felica was introduced on the transport system. It differs to NFC, and there are plenty who would tout Japanese contactless technology to be easily replicated overseas.
Japan is also heavily inspired by Chinese platforms. In Japan, Alipay is a strong threat. The company only took about three years to take off and scale massively. True, there were exceptional circumstances, it was a perfect storm; the market was as ripe for it as a cracked desert floor for a flood, but the ecommerce market in Japan is now also on the brink of bloom, creating additional fertile ground for fintech. Who would have thought Japan could leapfrog Europe at its own game.