Japan gears up for fintech revolution
The world's third largest economy, Japan, is embracing 'fintech' (financial technology). Japan has decided to relax restrictions on investment in fintech sector. Japan's economy is undergoing through a variety of factors such as strict regulation, easy access to credit due to rock-bottom interest rates and weak demand. After relaxations, banks can have 100 percent holding in non-finance related firms.
Strengthened with estimated $9 trillion individuals' cash deposits, Japan's economy is poised to witness a free flow of capital once restrictions on investments for fintech segment go off. Fintech ventures are mostly startups mobilized only $44 million during the first nine months of 2015. Fintech startups raised $2.7 billion in China and $1.5 billion in India, according to CB Insights Data.
Fortune further reports that a variety of business dynamics such as strict regulation, easy access to credit due to rock-bottom interest rates and weak demand for financial services are impacting Japan's economy. Its consumers are risk-aversive and still prefer cash to credit cards, creating a major hurdle for fintech's progress in Japan.
Fintech ventures are mostly startups engaged in providing loans, insurance and cloud data storage to smartphones. Japan's financial sector regulator is planning to relax rules and norms on investments into fintech startups. The new system will regulate virtual currency exchanges, for which a Bill is scheduled to be tabled in Parliament by May 2016.
Norio Sato, a senior official at the Financial Services Authority (FSA), told Reuters "The law changes aren't a goal, but a first step. Fintech will have a big impact on financial services." The proposed Bill to allow virtual money will be the first major step for Japan.
Once the Bill is approved by the Japanese Parliament, banks can buy stakes up to 100 percent in non-finance related firms. This will free up Japan's three megabanks to forge new alliances with fintech ventures. Japanese banks can develop services such as robotic investment advisory and blockchain. The decentralized ledger technology behind the bitcoin digital currency is gaining momentum.
Of late, virtual digital currency is becoming popular as it's being accepted globally. With volumes in bitcoin digital currency increasing, global banks are eying the potential in fintech segment. Japanese banks such as Mitsubishi UFJ Financial Group, Mizuho Financial Group and Simitomo Mitsui Fianancial Group are keen on fintech services and bitcoin digital currency. Earlier restrictions were allowing stakes upto 5-15 percent in startups, as reported by TodayOnline.
With sluggish demand for bank loans, Japanese banks are optimistic of making more revenues from fintech segment. It's also learnt that there may be some sort of disrupt in traditional business models.