Japanese banks, long content to foster the nation’s love for cash, are now diving into digital payments thanks to a regulatory change that threatens to usher in new rivals.
In recent months, lenders around the country have announced a flurry of initiatives designed to grab a slice of the $50 billion market for electronic settlements. Projects are under way to develop platforms using everything from QR codes to blockchain technology and digital currencies.
The catalyst: a law change being phased in over the next two years that will make it easier for depositors to give third parties access to their accounts and data. Part of a government effort to reduce Japan’s high cash use, the amendment could spur competition from financial-technology giants such as Ant Financial and Apple Inc., as well as startups like Ripple Labs Inc. and Origami Inc.
“Releasing their own coins and payment methods is what the banks need to be doing,” said Eiichiro Yanagawa, a senior technology and banking analyst for consulting firm Celent. “Banks that move too slowly will have their tastiest business eaten up.”
Last month, banks submitted draft policies on the so-called application programming interfaces, or APIs, that will open up their systems to fintech firms seeking to do everything from payments and remittances to budget planning. The Financial Services Agency expects most lenders to have open APIs in place by 2020.
Lenders worldwide are shifting to open banking models, urged on by regulators including the FSA that want them to adapt as technological innovation shakes up the industry.
Japan’s banks need to make sure they “have the area covered” before startups and established technology firms join the market, said James Lloyd, a Hong Kong-based fintech specialist at consultancy EY. “Open banking is about as big an infrastructure regulatory change as you’re going to get in retail banking.”
Digital payments also provide opportunities, according to Celent’s Yanagawa. As well as tackling Japan’s costly love affair with physical money, the shift to open banking will allow lenders to add services and build up information on customers’ spending patterns. Tapping transaction records can help banks learn more about their clients’ credit and investment needs, for example.
