In recent newspaper articles and news reports, we frequently hear about "Fintech," a coinage derived from the two words "finance" and "technology." New financial services created by integrating finance with state-of-the-art technologies in various forms as well as related trends and movements are collectively referred to as "Fintech."
Why Is the Fintech Market Rapidly Expanding throughout the World?
One reason why Fintech has attracted a lot of attention is the changes in lifestyles due to an increased number of smartphone users. For example, we can now transfer money or check account balances from our smartphones or tablets easily at any time using Internet services provided by financial institutions - which we previously were unable to do unless we visited a bank branch or ATM. In particular, improving the efficiency of financial services is drawing a great deal of attention from young people, who are accustomed to using smartphones and familiar with ICT, as well as busy working-age people. Companies around the world are competing to create new financial services to respond to social needs, which has resulted in the rapid expansion of the Fintech market.
The data above from Nikkei Inc. illustrates the Fintech market's rapid expansion. Global investment was less than 10 billion dollars until 2014; however, it doubled to 19.7 billion dollars in 2015. Nikkei announced that investment is expected to further increase by 20% in 2016 to hit a new high of 24 billion dollars, and it will reach approximately 46.1 billion dollars in 2020.
Venture companies, megabanks, and major securities companies have started Fintech businesses, and new financial services are coming into being one after another.
Let's take a closer look at detailed case studies on Fintech, which is driving today's financial solutions.
[Usage Case Studies] Fintech Is Changing Familiar Financial Services
Usage case study 1: Household accounting and asset management app
As a case study on Fintech that has already been put into practical use, we will first examine a household accounting and asset management app provided as a service, which is closely related to consumers' daily lives. With this service, one can have the app automatically prepare records of household monthly income and expenditures, including credit card purchases and cell phone bill payments, which thus far have been managed with a household account book or an Excel file, simply by registering one's account and credit card information in advance.
Money Forward, a pioneering app for household accounting and asset management in Japan, has partnerships with approximately 2,590 financial institutions (as of September 2016). Some data indicates that users can reduce daily wasteful expenditures and save an average of 11,642 yen per month by checking the balance of income versus expenditures automatically prepared by the app. In addition, the app makes it possible to collectively manage financial assets, such as bank term deposits and security company stocks as well as investment trusts. This household accounting and asset management app can be said to be a Fintech service that has greatly changed the relationship between individuals and their money.
Usage case study 2: Robo-Advisor
The next case study of Fintech concerns robo-advisor services that have been deployed by major securities companies and venture companies. A robo-advisor provides an automated service to determine the optimal asset management portfolio and carry out financial product transactions for investors based on their answers to questions about topics such as their age, number of dependents, and annual income.
Mizuho Bank's SMART FOLIO and Money Design's THEO (launched in February 2016) are famous robo-advisor services in Japan. Their greatest attraction is their inexpensive fees. In the case of THEO, as of September 2016, the cost of discretionary investment management is 0.5% per annum for assets in custody of 30 million yen or more and 1% per annum for assets in custody of less than 30 million yen. Fees for robo-advisor services are as low as approximately one-fourth those of financial institutions' sales representatives. Robo-advisors are also popular because of their easy operation. For example, THEO's investment plan service, which is free of charge, chooses an appropriate asset portfolio in an instant by having users answer just nine questions, including their age and risk tolerance. An example portfolio is as follows: 33% in stocks in developed countries, 3% in stocks in emerging countries, 23% in government bonds of developed countries, 21% in investment-grade bonds, 7% in high-yield bonds, 4% in bonds of emerging countries, 3% in REIT and real estate stocks, and 6% in commodities.
Thanks to robo-advisors, young people who are familiar with smartphones and busy office workers can now manage their assets easily without having to go to bank counters or securities companies to consult about their portfolios. Compared to financially advanced countries like the United States, Japan's household savings rate is cash-heavy and few people actively manage their assets. However, Japan's asset management style will change greatly if people can easily manage their assets with the help of robo-advisors.
To Further Accelerate Fintech's Rapid Growth
Initiative 1: Establishing "Financial Innovation For Japan" (FIFJ), a consortium of financial institutions and Fintech companies
The key point for successful business in the field of Fintech is that both the finance and ICT sectors understand the needs of consumers and companies as well as accelerate open innovation in financial services. Fujitsu is working on various initiatives to create new value in Japan's Fintech by using its broad network and strong relationships of trust with financial institutions as well as its sophisticated technologies. One of these efforts is Financial Innovation For Japan (FIFJ), a consortium for venture company matching, the objective of which is to provide services born by integrating advanced ICT with financial know-how from domestic financial institutions as well as domestic and foreign Fintech companies.
A total of 241 financial institutions and Fintech companies (as of September 1, 2016) participate in FIFJ, through which domestic and foreign Fintech companies hold various events. FIFJ held its first general meeting on September 3, 2015. At FIFJ Fall Meeting 2016 (the third meeting) on October 17, 2016, the Financial Services Agency and FinTech Association Japan delivered keynote speeches and exchanges among companies were promoted.
Expectations are growing for innovative Fintech services to be co-created from the new consortium Fujitsu has created, FIFJ, through collaboration between financial institutions and Fintech companies.
Initiative 2: Supporting business growth with Finplex financial solutions
In March 2016, Fujitsu announced the introduction of "Finplex," its new systematic approach to financial solutions, with the aim of supporting the digital business era. While maintaining a high level of reliability for solutions in the systems-of-record (SoR) area, including accounting systems, Fujitsu will also focus on providing solutions in the systems-of-engagement (SoE) area in response to the needs of financial service users.
As one application example of Finplex, Fujitsu is developing a mechanism to realize collaboration between new digital channels such as mobile applications and existing accounting systems using an API (*) and other advanced technologies. Fujitsu is also helping to carry out an examination of a bank's robo-advisor that has housing loan business know-how with the aim of improving the convenience of housing loan consultations using AI.
In addition, Fujitsu is developing a prototype of a community-based payment service using blockchain and biometric authentication technologies. Fujitsu will showcase these technologies at Money20/20 to be held in Las Vegas, USA, in October.
(*) API: Application Programming Interface
Fujitsu Works with Customers in a Variety of Fintech Services
Fujitsu's initiatives in the field of Fintech include a new smartphone app service for Nanto Bank, the first for a regional bank, and collaboration with Mizuho Bank and Fintech companies in the state of California, USA. For the details of these case studies, please refer to the following links.
The Future of Fintech
Financial services that employ state-of-the-art technologies such as AI, blockchains, and IoT are expected to appear around the world one after another in the future as well. The day will soon come when new Fintech services substitute for manual operations that used to be performed by people, and also when Fintech services support human operations more accurately and efficiently.
Given the large momentum behind Fintech, Fujitsu will continue to implement various initiatives to generate more innovative value using its broad network, strong relationships of trust with companies, and its sophisticated technologies. Fujitsu will continue to strive to make advanced technologies and services take root widely in individuals' lives and companies' operations.