Will Google Bank or Facebook Bank conquer the world? Should financial institutions be wary of digital giants attempting to make moves in the financial industry? Head of the fintech centre at the Bank of Japan, Naoyuki Iwashita, said that Japanese institutions fear this happening in their country.
After the law that prohibited fintech startups from owning more than 5% of a technology company was abolished, big banks in Japan are expected to invest hundreds of millions of dollars into them. This is part of a national effort to encourage financial technology companies to grow, which could in turn kill off the traditional banking sector, according to the Financial Times.
Mizuho CEO Yasuhiro Sato told a conference in Tokyo that regulators had restricted banks because they wanted to retain and preserve “old, but tried-and-tested, IT systems,” the FT said. “I think [regulators], especially the Japanese Financial Services Agency, are not changing their thoughts on that,” Sato said.
The regulator, the FSA, has had a similar view to regulators in some other countries who are attempting to make it easier for fintechs to operate, and without the regulatory burden. According to Sato, this would be “in order to obtain more technological advances from outside participants”.
“That’s the reason why the banking law will now quite likely be changing,” he added.
In other news, Japanese e-commerce group Rakuten launched a $100 million fund to invest in fintech companies and financial group SBI Holdings, which raised $299 million as part of their fintech venture fund earlier this year. The FT relayed how the admiration of the US way of acquiring companies has resulted in Japan pushing its native fintech ventures to do the same.
An example of this is the alternative lender SoFi, valued at $4 billion, which has had an investment from Japan’s SoftBank, the FT explored. “We have revised the Banking Act and, through the revision, people in banks, in business suits work together with young people in T-shirts and jeans. They work together and the combination of this gives rise to new things,” Japan’s deputy prime minister Taro Aso said.
Last week, a senior Bank of Japan official said that digital currencies will not make a difference to “hard money” printed by central banks in countries like Japan in the near future, according to Reuters. Hiromi Yamaoka, head of the BOJ’s payment and settlement systems department, said that the need for central banks to maintain public trust in their policies has increased with the emergence of fintech and in turn, the depletion of cash.
According to Reuters, Yamaoka also said that although the Bank of Japan is not actively experimenting with virtual currencies, the promotion of fintech is being encouraged. “Central banks of advanced nations, including the BOJ, have been printing money aggressively to reflate their economies with little success. While their hope is to generate inflation, critics say the move could erode the value of their currencies and damage their credibility,” Reuters said.
Yamaoka also said that in Japan, “where the public has confidence over the banking system, it’s important to create an environment where banks and startups work together”. Japanese banks can use fintech in order to cut costs but the maintenance of huge financial infrastructure could diminish as technology expands.
“One of the trends of fintech is the possibility of providing financial services by smartphones without any ‘brick and stone’ infrastructure. In that trend, the heavy infrastructure of ATMs and branches means it’s difficult to gain a competitive advantage,” he was quoted as saying in Reuters.