As Fintech has attracted attention in Japan, venture companies increasingly provide new financial services using the latest technologies (hereinafter "Fintech services"). As the use of these Fintech services gradually expands, how will consumers change the way they manage money and use financial products and services?
In this article, The consultant at Fujitsu Research Institute (FRI) compares actual consumer usage of Fintech services in Japan and the U.S., and introduces future directions of Fintech services in japan.
- Author Profile
- Consultant, Cross-Industry Business Planning Group
Fujitsu Research Institute
- After joining Fujitsu Research Institute in 2013, Ishiyama has been engaged in consulting related to channel, sales and IT strategies based on customer trend surveys on financial products and services with the theme of local economy and finance.
*Titles and companies are as of the date of the interview
* This is reproduced from an article in Fujitsu Research Institute's information magazine, Chisounomori, Vol. 6, pp. 28-34, 2017.
More than Twice in 2 years! Steadily Increasing Fintech Services
In Japan, since 2015 when Fintech started attracting attention, Fintech services for smartphone users have launched one after another.
According to the results of Fujitsu Research Institute's annual survey on smartphone use (*1), the number of smartphone apps provided by domestic banks has more than doubled from January 2015 to May 2017 (Figure 1). Also, in an annual questionnaire survey targeting the planning staff of regional financial institutions conducted by Fujitsu Research Institute (*2) (Figure 2), more than 80% answered that they want to focus on the use of smartphones as the future topic of ICT. Therefore, domestic financial institutions (service providers) have a positive view toward providing Fintech services, which is expected to continue going forward.
Fintech Service Utilization Rate Remains at a Standstill
On the other hand, when watching the trends of consumers (service users), we can see that the utilization rate of Fintech services in Japan remains at a standstill. A survey on the use of Fintech services in Japan and the U.S. by Fujitsu Research Institute (*3) reveals that there is a big difference in the utilization rates of Fintech services between the two countries.
When comparing the survey results on the utilization rates of typical Fintech services, such as Personal financial management tool (*4), robo-advisor (*5), and p Person-to-person payment app (*6) in Japan and the U.S., it was found that the utilization rates in the U.S. were more than double those in Japan for all types of services (*3). In Japan, Personal financial management tool, represented by Money Forward, have announced many partnerships with domestic financial institutions. Because of that, household and asset management is regarded as an advanced area of Fintech services; however, the actual utilization rate in Japan is only 14%, compared to 33% in the U.S.
While Japanese financial institutions are proactively engaged in providing Fintech services, it seems consumers are still reluctant to use Fintech services. What is the difference between the U.S. and Japan in using Fintech services?
U.S. Advancing Digitization of Banking Channels, with a High PC Utilization Rate of 74%
There are differences between Japan and the U.S. in how consumers interact with banks. Figure 4 shows the experience and the frequency of use of various banking channels by consumers in Japan and the U.S. within one year. Consumers in both countries often use bank tellers and ATMs, but there are differences in the experience of using digital channels.
In the U.S., Internet banking is a common channel used by many consumers, like bank tellers and ATMs. The utilization rate of smartphones is more than twice as high as Japan, and more than half of U.S. consumers answered that they have used banking services through smartphones.
The question asking consumers about their intention to use banking channels in the future clarifies the differences between Japanese and U.S. consumers. Japanese consumers are reluctant to change the channels they use, and the number of those who answered they want to change the banking channels they are using remains at only several percent. By contrast, a high percentage of U.S. consumers answered that they would "use tellers less" and "increase the use of smartphones" (Figure 5). The results of this survey show that digitization of banking channels is more advanced among consumers in the U.S., which seems to have a positive influence on the use of Fintech services.
Why Is Digitization Advancing in the U.S.?
As mentioned above, digitization of banking channels is advancing in the U.S., which is considered to lead to high utilization rates of Fintech services. In the backdrop of the advanced use of digital services there seems to be influences of social conditions and consumer preferences specific to the U.S.
The demographic composition is very different between Japan and the U.S. In the U.S., the young generation called Millennials (born in the 1980s to 2000s) who have a high affinity with digital channels accounts for about 30% of the total population. Enriching digital channels is vital for U.S. banks to gain access to greater potential markets.
In addition, the usage environments of the three types of Fintech services introduced earlier (Personal financial management tool, robo-advisor and Person-to-person payment app) differ greatly between Japan and the U.S.
It is assumed that the strength of the demand for household and financial management is different between Japan and the U.S. According to an interview survey Fujitsu Research Institute conducted for major U.S. Fintech companies, consumers in the U.S. transact with 10 or more financial institutions on average. Because they use many financial institutions, it is expected that they have a strong need for features integrating and managing transaction information from multiple sources. In the U.S., individuals are required to file tax returns every year, so they need to manage their own financial information accurately.
Consumer needs for financial products also differ between Japan and the U.S. Comparing the portfolios of (household) financial assets of the two countries released by the Bank of Japan (*7) and the Federal Reserve Board (FRB) (*8) (Figure 6), Japanese consumers hold more than 50% of their assets in cash and deposits, while U.S. consumers hold a high percentage of their assets in stocks and investment trusts. Asset management tools, such as robo-advisors, may be appealing to U.S. consumers who aggressively invest, while they are not so appealing Japanese consumers who have little need to manage their assets.
The cashless status is also different between Japan and the U.S. According to a report released by the Bank for International Settlements (BIS) (*9), Japan's CIC-to-GDP ratio (the ratio of currency in circulation to nominal GDP) is 19.4%, the highest among the countries surveyed, while the same ratio in the U.S. is 7.9%. In the U.S. where cashless transactions are popular, digitalization is thought to be progressing in person-to-person payments as well.
Therefore, against the backdrop of popular use of Fintech services in the U.S., social mechanisms and consumer needs exist for financial products and services (Figure 7).
To Expand the Use of Fintech Services in Japan
The way consumers interact with financial institutions and the use of financial products and services are different between Japan and the U.S. It can be said that Fintech services have been born and developed based on the underlying needs and challenges of financial consumers and social trends in each country. Currently in Japan, Fintech services show a rising trend; however, the use of services has not yet expanded.
In order to develop and expand Fintech services in Japan in the going forward, it is necessary to devise contents and methods for providing Fintech services, taking into account the characteristics of Japanese consumers and insights into the Japanese environment.
In realizing such Fintech services, the planning process will be increasingly more important than ever to reflect user trends and reaction to service contents. As for the service contents for Japanese consumers--who prefer not to change the use of financial products and services--it would be effective to provide highly convenient financial features that support life and business behind their financial needs. For example, some overseas financial institutions provide apps that have features for searching products, such as real estate and automobiles, to identify the emergence of financial needs at a more upstream level using such products as entries to guide consumers to their own services. In the future, in order to provide deeper insights that contribute to the planning of Fintech services, we will conduct surveys on new Fintech services in developed countries, such as Europe and the U.S., as well as rapidly growing emerging countries to build case studies and hypotheses specific to those regions by expanding the scope to cover underlying user trends and social issues.
Fujitsu Research Institute will promote consulting and research activities using input from overseas advanced cases and underlying user trends, with the aim of providing more convenient financial services to users.
- *1: Survey on the number of apps provided by financial institutions (January 2015, May 2017): Personnel from Fujitsu Research Institute and Fujitsu regularly count the number of apps provided based on the information from apps stores and banks' press releases. Each app feature provided is counted as one app.
- *2: Questionnaire survey for regional financial institutions (January 2017): Fujitsu Research Institute conducted an annual survey (using the placement method) targeting regional banks and second regional banks across Japan. Thirty-two banks responded last year. The top five items selected from multiple choices are shown as results.
- *3: Questionnaire survey on Fintech (Japan): A web questionnaire survey conducted by Fujitsu Research Institute in June 2017 in which 1,024 people at least 18 years old in Japan responded. The composition of respondents was adjusted so that the percentages of age groups, genders and residential districts correspond to demographic statistics. Questionnaire survey on Fintech (U.S.): A web questionnaire survey conducted by Fujitsu Research Institute in March 2017 in which 1,000 at least 18 years old in the U.S. responded. The composition of respondents was adjusted so that the percentages of age groups and genders correspond to demographic statistics.
- *4: Apps and web services that integrate and analyze account and credit card use information and display the results in an easy-to-understand manner. Representative examples in Japan are Money Forward and Zaim.
- *5: Apps and web services that support asset management by AI-based forecast and portfolio diagnosis. Representative examples in Japan are THEO, WealthNavi, and SMART FOLIO.
- *6: Apps and web services that can easily transmit money between individuals by using social media accounts. Representative examples in Japan are Rakuten Bank app, Facebook money transfer, and LINE Pay.
- *7: "Flow of Funds Accounts Statistics" by the Bank of Japan (released on December 19, 2016).
- *8: FRB, Financial Accounts of the United States, Third Quarter 2016 (released on December 8, 2016).
- *9: BIS, Statistics on payment, clearing and settlement systems in the CPMI countries (December 2016)