Case Study: How is the Fintech Industry Faring in Japan?
The financial industry has been undergoing remarkable changes since the emergence of fintech. The fintech industry has come as a wave ready to submerge most, if not all, financial processes and activities under its depth. With the growth in the supply and demand for technological developments, there has been an open road awaiting fintech’s outrageous but impressive stunts.
Because of its vast potential and unimaginable scope, the fintech industry has become one of the most lucrative industries. Technology has substantially lessened the restrictive paradigm of national boundaries, making way for closer connections between countries and populations. With improved connectivity and colossal scope, fintech companies are now in cut-throat competition, compelling more intense innovation, application, and adoption of fintech.
A few countries with technological leverages and strong historical positioning have become world leaders in fintech, like the USA and the UK. Silicon Valley in the USA has been home to many techs and fintech giants, like Apple, Meta, etc. Similarly, London has attracted enough attention and traffic to become the second biggest leader in the fintech industry.
However, other fintech hubs, like Singapore, Japan, China, etc., are relatively newer but rapidly growing. The fintech scenescape in Singapore has made it the fourth largest fintech hub in the world. China has a strong hold on the fintech industry, with global giants like the Ant Group in its corner. Even though small in size, the Japanese fintech market strikes as a fresh and promising affair because of Japan’s technological capabilities.
Japan is the third largest economy in the world, after the USA and China. However, the country is much smaller in size and population compared to its more successful counterparts. While the American population is just over 330 million, and China remains the most populous country with a population of 1.4 billion, the Japanese population is only around 125 million. Such demographics suggest that the Japanese economy is much stronger than these numbers.
Fintech in Japan
The Japanese fintech market is successful however, it is also bound by several obstacles that have stunted its growth. Tokyo, the capital city of Japan, has been one of the most prominent players in the global economy. Being both financially and economically strong, Tokyo has been home to several fintech startups, some of which are successfully competing at the global level. Tokyo is one of the hubs of financial companies and technological advancements. Tokyo has reported the highest GDP of $1600 billion globally, followed by New York, with a GDP of $1400. Such financial positioning and global leadership suggest an enormous potential.
The Japanese fintech market has received one of the highest venture capital investments summing up to more than $90 million. Only a handful of countries have high investment values, like the USA, Singapore, the UK, etc. Japan boasts more than 1500 financial institutions, making it an integral part of the global financial system.
Although the Japanese market has a strong global position with promising potential and scope, it is faced with challenges impacting its fintech journey.
One of the most challenging points for the Japanese market is the inflexibility attached to innovation. The fintech industry is rapidly evolving, compelling companies to innovate and ideate novel concepts. The cultural setup in Japan proves slightly more rigid than average, which bars random streaks of innovation that could prove disruptive to the traditional financial systems in a good way. The culture and government both, require people to improve and optimize the existing systems to achieve maximum efficiency.
Analysis of Reasons Influencing Fintech Development
Several factors influence the reach of fintech and its development. The fintech hubs like Hong Kong, Silicon Valley, London, etc., commonly share most of these factors allowing them to function seamlessly. Assessing these factors gives added insights into the topography of the Japanese fintech market.
Government Policies
Government support in Japan has received a high rating, implying that the government has set up policies and reorganized its systems to propel the success of fintech and the easy functioning of fintech companies. However, compared to the freedom associated with policies in the UK or Singapore, Japan seems slightly far off in providing the ideal ecosystem to incubate fintechs.
Innovative Capabilities
The Japanese population is known for its extraordinary talent and innovative capabilities vis-à-vis technology. The Japanese have found an exciting industry that promises a grand future in fintech. However, the Japanese culture of optimizing existing systems before stepping into new branches overpowers the freedom required for pronounced innovation.
Adoption Rate
The adoption rate of technology in Japan is one of the highest in the world. With several other industries also slightly more technologically advanced compared to the rest of the world, Japanese technological adoption is substantially higher than average. However, new technology brings change to older systems. The average age of the Japanese population is almost 50, which is older than its competitors. Psychologically it is easier for the younger generations to adopt new technologies and accept changes than for older ones. Thus, with the rapid developments taking place globally in the fintech industry, the Japanese population remains divided. Its technological leverage prompts the adoption of new technologies, however, its psychology limits this acceptance.
Overseas Partnerships
The Japanese are known for their strong culture and belief in self-sustenance. Such cultural strongholds influence the entry of overseas business providers and global partnerships, which could substantially help in the fast expansion of fintech firms.
Top Fintech Companies in Japan
Kyash – Digital-only bank application and e-Wallets
Paidy – Buy Now, Pay Later provider
PayPay – Online payment portal provider
Coincheck – Cryptocurrency platform
Freee – Accounting software and financial services provider
Quoine – Cryptocurrency exchange platform provider
Money Forward – Personal finances management platform provider
Most Prominent Fintech Segments in Japan
Application Programming Interface (API)
APIs allow communication between different applications and software, which enables consolidation of services, like traditional banks offering online services. APIs have gained tremendous popularity in the Japanese market to cater to cloud accounting and payment services.
Artificial Intelligence (AI)
AI involves designing machines to read, analyze, and interpret human behavior, which gives several insights into customer and product journeys. AI is an advanced technology that is surfacing in almost every industry now. Japan’s technological links have incentivized them to become frontline players with AI.
Blockchain
Blockchain technology is the newest rapidly emerging technology globally that has caught the attention of the mass majority. Blockchain technology provides decentralized platforms for storing, using, and transferring cryptocurrencies. Several Japanese fintechs have released their crypto wallets, cryptocurrencies, and platforms allowing easy cryptocurrency transfers.
Closing Words
The Japanese fintech market is one of the most promising segments on the global fintech map. Japan has been home to many financial institutions because of its expertise in technology and innovative capabilities. The level of investments flowing into the Japanese fintech economy has been one of the highest compared to the global fintech leaders and emerging hubs. Fintech has immense scope and potential for growth and advancements, which are well-complemented with Japan’s innovative capabilities.
