Japan: a laggard in banking technologies?

Competition between the fintech hubs in the Asia-Pacific (APAC) region has been rising as more nations feel the pressure to keep up-to-date with sophisticated technologies within banking. Japan however is seen as a laggard in this heated race, paling in comparison to other APAC countries as seen in EY’s FinTech Adoption Index 2017.

Seeing a need to pick up on their efforts, there has been a recent spike in initiatives to embrace and promote fintech with the gradual intersection between finance and information technology. Some of these initiatives set in place have also kept in mind the 2020 Tokyo Olympics, with an intention to highlight the forward-looking mind-set of Japan.

1. J-Coin – Japan’s very own cryptocurrency


Earlier this year, bitcoin was legalised as a payment method in Japan, with Mizuho Financial Group being one of those banks spearheading the efforts of the J-Coin launch, likely before 2020. A group of Japanese banks led by Mizuho Financial Group intend to use the new currency to offer electronic payments, alongside commission-free remittances. This is in light of the growing competition with e-payments services provided by international tech giants like Alibaba Group Holding and Apple.


J-Coin will bring benefits from big data as the initiative will accumulate users' spending and remittance records, along with other relevant information. This data would be shared -- anonymously -- among the banks and sponsor companies, allowing them to enhance and improve their marketing and pricing strategies. Although it’s still in the early stages of preparing for the launch, the J-Coin is confirmed to be pegged to the yen that allows users to spend it through a mobile application. This is in an attempt to gravitate Japan’s population away from the usage of cash.


Cash is used in majority of payments within Japan, with 80% of transactions made of coins and paper bills, compared with over 50% of cashless payments in other developed countries. Japan aims to double digital payments from 20% to 40% in the next decade by helping metropolitan-area businesses afford cashless services to better attract foreign visitors. A “banking at your own convenience” type of service. This trend not only benefits consumers but financial institutions alike, as it provides more insight into their clients’ behaviour from data collated by mobile banking applications.


2. Biometrics in banking


Biometrics which is defined as our fingerprints, voices and other unique traits that can be wielded for identity purposes can obviate the need for not just passwords, but credit cards within the financial sector. Japan’s interest in this was catalysed by the government’s commitment to innovate and integrate the workings of biometrics in areas such as banking.

Palm vein biometrics is an authentic contactless technology that uses vascular patterns as personal identification data. Bank of Tokyo-Mitsubishi, one of the leading bank in Japan uses Fujitsu’s palm vein biometric system to provide a cost effective and secure solution of identity authentication and funds transfers. Japanese banks have been impressed by the security-enhancing properties of palm vein technology. This market is likely to grow at a considerable pace during the forecast period from 2017 to 2025 owing to the growing need of securing confidential information and data of an organisation in order to sustain their market position. In a country still relatively cash-heavy, banks are promoting its use by increasing daily cash withdrawal amounts and lowering bank charges for customers who elect their usage of biometrics to identify themselves. With biometrics woven into the authentication of bank accounts, security is further enhanced with a multi-factor authentication - knowledge (e.g PIN), possession (e.g a token), and inheritance (e.g biometric data).

Similar to palm vein biometrics, major Japanese bank Sumitomo Mitsui Financial Group are also innovating its biometric authentication systems that will allow shoppers online and elsewhere to confirm payments using their fingerprints or voices, reducing the effort spent creating and managing usernames and passwords. This would be a joint venture established with Irish biometrics firm Daon who will market the technology to financial institutions and e-commerce companies.


What is next for Japan?


As the nation pumps up on its efforts to create a more cohesive and technologically savvy banking sector, Japan should take precaution of the vulnerabilities it will be opened to. This includes network and application failures, cyber-attacks and weaker security. Several big Japanese banks have been lobbying their government and regulators about the danger of e-paying services that were launched recently in several cities including Tokyo. This is based on an argument that Japanese consumers data would be potentially sold to tech giants that crave data which may result in ethical implications if consumers are left unaware that their data have not been kept confidential and instead made to use for other motivations.

There were also much discussion about how banks would be able to accumulate and share users’ information such as spending and remittance records with J-Coin, despite able to cover it anonymously. While these concerns continues to circulate, Japanese banks would need to assure the public of their privacy and security protocols and this can only be done if they are well equipped with a robust and skilful cyber security team. Currently, Japan is lacking in talent within new technologies such as cryptocurrencies and cyber security. Hence, organisations will need to start hiring if they wish to recruit the best talent available in the market.

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