Interviewed By Matthew Dooley
Emmanuel Daniel, chairman of The Asian Banker, and one of its international resource directors, Matt Dooley, discuss their insights on fintech developments in Japan and how the local culture is helping propel a unique fintech ecosystem in the country.
Here is the transcript of the video.
ED: So Matt, what do you think about what we’ve been learning in this Japan trip?
MD: I learned a lot more than I thought I would. It is a nascent fintech ecosystem but it was more about the culture of Japan being very traditional – an emphasis on “zen” and simplicity and design, everything is perfect. Their industrial age… they are very good at process.
ED: Something that I had a sense of, and because you are on the ground here in Kyoto and Osaka, that the Japanese perfected design as part of… I mean rather they have the industrial revolution, which gave them the hardware to design and to perfect. But in the fintech revolution, in the start-up revolution, in the future revolution, a lot of it is not hardware it is software, and it’s actually “organisation-war”. In other words, it’s “community-ware”, it’s people… And how do you think they’re capturing that? So when you think fintech development… by the way I did get a sense that a lot of what is fintech in Japan was actually imported. So, these are top of mind thoughts.
MD: And what I’ve noticed about a lot of the fintechs in Japan, they are a combination of Japanese who have studied overseas, studied in Silicon Valley, and now they’ve seen opportunities and solutions in other markets and they are actually saying: Well this would be perfect for Japan. The westerners that we came across were very competent in terms of understanding the culture, they spoke the language like a local and this was really critical because they’re on a journey, and its changing that culture of pristine quality and absolute perfection.
ED: So you’re saying that the foreigners who live in Japan have imbued that... they actually value the Japanese culture of perfection.
MD: You have to embrace failure and I don’t think the Japanese culture embraces failure. They seek absolute perfection. So, a zero tolerance for… something. And in the digital age, we work to get something live and to understand how the customer is interacting with an app or interacting with a solution…
ED: It’s a “test and learn” thing.
MD: Yes and the Chinese are very different in the sense…
ED: They hit the ground running with what they have…
MD: The Chinese are incredible in terms of community, like a real sense of community, in developing their community. The Japanese have been very good on the production side. This was really evident in Osaka where they had very good processes, they’re very good in terms of – and this comes from the automotive industry – where you have very strong ecosystems on the development side. So the “Toyota Way” is something that the western markets have actually got, and the US car manufacturers actually adopted that kind of ecosystem, where no automotive company would actually develop all the technology themselves, they have smaller suppliers... And the best evidence of that was at Tokyo Fish Market where you have an incredible amount of supply chain from big trucks to small trucks to single man forklifts, it works so efficiently.
ED: So the purpose design mind-set enables the Japanese to perfect the supply chain, but a very high cost, because the amount of equipment that you need to manufacture, and the amount of assumptions that you make in terms of what goes where and so on... But how does that transpose into technology, into the fintech world, and when the Japanese say fintech what do they mean because their own institutions are quite old fashioned?
MD: We heard yesterday about Ant Financial coming to Japan, and their quest is: what are the customer pain points in each of the markets that they are entering into, and what are they actually solving. With Japan you have got a unique market, it is about the customer behaviour like every other market we have seen. And the uniqueness of Japan is that they have got a very ageing population. They embrace robotics like nothing, they embrace having AI take over their lives because they realise that in the future that population that’s creating the innovations today, they need support. They have no one underneath, so they’re trying to protect their lifestyle because they know that when they’re old and everything they won’t be able to do it. In Osaka we went to the Grand Front Osaka, which is an innovation hub, which was really positive because they created a café environment, a lab environment where they invited school children and the agedto come and play with these devices, very industrial devices. So, devices like helping old people out of bed, like a physical robot. And those were some really quirkyrobots and bots- chatbots, conversation bots. On the fintech space, it’s different.
ED: So it’s been a great trip to Japan visiting all the fintech communities, as well as some of the innovation centres in Osaka, Kyoto, and then in Tokyo. What do you see are the top five, top ten themes in fintech? When we say fintech in Japan, what do we mean?
MD: So, it has to go back to the pain points that the fintechs are trying to solve in this local market. They have an aged population, they have a very cashed up population as well, and their cash is actually in a savings account, earning zero interest. So, that presents itself a bit like what Yu’e Bao did for Ant Financial in China.
MD: Money sitting there, so do you want to make some money on that money? So I think there is real opportunity for wealth management, simple products for wealth. The hardest thing is, you have, for the last thirty years, no growth in Japan.
ED: So when you say wealth, it’s more of wealth preservation rather than wealth growth.
MD: Yes. So, you’re taking a mind-set of one generation and the next generation that’s coming, of only having cash in a bank account. And they’ve got to take that and say well, do we want to put that at risk. So, a lot of financial literacy is required, they’re not sophisticated. I think ETFs, robo-advisory, financial literacy…
ED: So, greater and greater automation on financial technology – that would be the common theme.
MD: We saw two fintechs on the robo-advisory side, and we saw two fintechs on the PFM side, the personal financial management, and both of them were trying to do the assisted kind of process, and helping customers through that particular journey, because they’ve never done that journey before. And in other markets they’ve had some success. 8-Securities was a really interesting discussion, because Japan found that, they weren’t seeking to be a fintech in Japan, they were just happily working in a market. And how that came to be was that their founder, Mikaal, actually tweeted something, and it got picked up by a CEO in Japan saying: “oh you should look at this company”. They ended up acquiring that Japanese tech company, which company was all about AI, and that AI has really help them introduce Chloe to the market. And they realised that the real opportunity and a great society to test that kind of technology is here in Japan.
ED: So, when you think about robotics and AI, it’s essentially processing all that information that already exists, and it’s the robustness of the processing that makes it... Is there an intelligence element in there or is it just the processing skill?
MD: I think with AI there’s so many different levels that we’ve learnt, and I think at this stage it’s trying to keep it very, very simple, you don’t need very sophisticated AI at the moment. Definitely the conversation-bots, they are testing it in other industries, and that will actually help bring them into financial services.
ED: Japan has an existing payments infrastructure structure that is highly fragmented, there are many players in the marketplace, and there is great inter-operability, and there is already so much infrastructure in the marketplace already. So what does fintech do to make sense of this, or is it taking it to another level, in payments for example?
MD: In the payments, they are very focused on the actual payment. We visited Origami which is a small, well it’s actually quite a large fintech, they got a very beautiful office in the centre of Tokyo. But what they’re trying is how to focus and create an entire ecosystem, and it is very fragmented. So Japanese people have many cards, and those cards are usually driven by the retails. What we saw in that space was AEON has become AEON Bank, 7-Eleven has 7-Bank, and they’re very focused in trying to keep that money within their own ecosystem. So all the retailers tend to have, not just a loyalty card but it’s a way to…
ED: So it’s going to be fragmented forever, because the retail warfare is such that there is enough critical mass for each of the retailers to maintain their own unique identity. There won’t be any great consolidation in Japan, and the fintech experiments, or the fintech efforts essentially to manage this diversity or manage this fragmentation.
MD: Yes and No. I think Origami and some of the other fintechs, as you move to APIs, is how do we get consistency of the APIs. So you may shop at three of four different retailers, and you’ll have interoperability around that. So, as we digitise everything, we can get interoperability. At the moment we have got systems that are legacy systems across all the different retailers. So, there is an opportunity to export that. What blew me away was in the short space since the iPhone was quite late in this market, Softbank brought the iPhone into Japan. And Paul Chapman, the founder of Money Tree, was an early developer on the iOS platform. He’s originally from Melbourne and he can speak fluent Japanese, but he was teaching people about apps and how to work within that development ecosystem. And that’s really helped him go into the financial services space. But there is a big opportunity because the early investors in Alibaba are Softbank…
ED: So, it’s sort there was a feeding between the Chinese and the Japanese…
MD: And Yahoo Japan was a big investor. I think, we did see financial, Japanese…
ED: So, there is wealth, there is payments, and there is AI. AI as in AI as applied to wealth.
MD: And probably the biggest unique thing is we saw was Pepper in a retail environment, and we saw Pepper in a bank with Mizuho Bank. And Mizuho have got it as a meeter and greeter at the moment, but they’re exploring cross sales, they are exploring product introductions and everything with it.
ED: And when Pepper does a cross sale, is he drawing from his own databank, or is he drawing from the enquiries coming in?
MD: It’s from the enquiries. It’s language-driven at the moment, and also very simple questions that Pepper has on its chest, almost like an iPad that you can actually interact. And it usually asks three simple questions, and again it’s focusing on that very simple process…
ED: So if you say fintech Japan as opposed to fintech Israel, fintech London, fintech US… What would you say (is) the single thing that jars out at you…?
MD: Well the paying point is all about assisting the aged and this whole wealth management, so I think robo-advisory and definitely PFM are the ways forward.
ED: And just building the structures to support themselves as they become an aging and self-sufficient population.
MD: They realise that they won’t have enough humans to help them, and so the machine has to take over.