FinCity.tokyo

Interview: Tokyo’s fast-growing fintech ecosystem

Tokyo’s fintech ecosystem is thriving on the back of the ongoing digitization of finance in Japan. Makoto Shibata, head of fintech community FINOLAB since 2019, discusses the opportunities that await entrepreneurs from Japan and overseas.

Could you please introduce FINOLAB?

FINOLAB is a community and office space aimed at enhancing the fintech ecosystem in Tokyo. We connect stakeholders and enable them to work together, share ideas, and promote open innovation. We have 57 startup members as well as 30 corporate members, including some of the major banks and insurance companies, credit card companies, IT companies, and mobile network operators. The Financial Services Agency is also a member.
My role as Chief Community Officer is to manage the community and give input to members on how they can facilitate innovation. I also write for industry media and produce videos on the latest developments in Japanese fintech.

Do you have any foreign fintech firms in your community?

We have 17 firms from outside Japan. Compared with the Japanese startups, they tend to have already had a certain degree of success in their home markets. Their products and services have reached a certain level and they have experience in offering these to users. FINOLAB’s support is often about helping these outside firms understand regulations or business customs in Japan.

How does the community approach help members innovate?

One big benefit is that they can learn from each other. International startups and domestic startups can collaborate easily and benefit from what the corporates are offering.
Sometimes we proactively introduce members to each other when we see a good fit, for instance if a startup needs a certain type of support from a financial institution. But often they just meet casually and start conversations that might develop into actual projects.

What opportunities do you see for foreign fintech firms in Tokyo?

Japan has a sizable financial market, in which many of the financial institutions are trying to digitally transform themselves. There are big opportunities for firms that can provide solutions that improve the efficiency of these financial institutions and add new value to their offerings.
Japanese financial institutions would traditionally only work with big IT vendors, but they are becoming much more open toward working with outside startups and newcomers, including non-Japanese firms.
Payments or loans or investments are obvious areas where outside firms can offer value, but solutions do not necessarily need to consist of new services. Traditional financial institutions also need help with user interfaces and usability, particularly with regards to mobile applications. Japanese banks typically try to be very precise but may not be very user-friendly. So there is a need for a new approach.

There is a lot of momentum in Tokyo’s ecosystem right now. What is driving this?

There are three major national agendas behind it. The first is the shift to cashless payments. While more and more people are using cashless payments, if you go to a convenience store, you’ll see dozens of different electronic payment methods, which is a headache for consumers. I think we will see some consolidation and new solutions here in the future.
The second concerns the aging population. This is a big challenge for Japanese society, since senior people own a major portion of financial assets in Japan. There is a need to think about how to best serve this demographic at the same time as we must think about how to transfer assets to the younger generation. In particular, we see that when the parents’ generation passes away, assets shift from rural to urban areas, creating challenges for regional financial institutions. There’s a lot of scope for new ideas here.
The third agenda is the shift from deposits to investments. The Nippon Individual Savings Account (NISA) increased its tax deduction limit last year, enabling more people to invest, but there is still a lack of understanding of how to allocate financial assets. Improving Japan’s overall financial literacy is key. Some startups are now developing tools that can provide advice or help visualize financial assets for better investment decisions.

Do you have a closing message to aspiring fintech entrepreneurs looking at Tokyo?

I think Tokyo’s fintech environment has matured compared to ten years ago. Back then, “fintech” was more of a buzzword and we saw startups trying to work with financial institutions on a trial basis. But now we are seeing tangible collaborations and strategic investments by major financial institutions into maturing startups. This is not only limited to the major financial institutions, but is also happening on the regional level where digital transformation is driving a need for good ideas and reliable technological applications.
There are many opportunities in an environment like this. To an international startup, Japan may look difficult in terms of language, culture, or regulations, but once you have gained some understanding of these, a sizeable market awaits. With a bit of patience, you will find the right opportunity.