Norbert Gehrke
Sep 17 · 6 min read

The FinTech Innovation Hub, created by Japan’s financial services regulator, the Financial Services Agency (FSA) in July 2018, has conducted hearings with 100 companies to develop viewpoints on how financial services can be improved and developed through (1) application of technology to the financial field, (2) further cooperation and partnerships between FinTech companies and financial institutions, and (3) the formation of a new FinTech ecosystem. The recently published report from these hearings lists ten key findings.

Key Findings — Summary

Artificial Intelligence (AI) — Leveraging Data

  • Advances in online lending using supply chain data by combining AI and Big Data
  • A changed approach to financial marketing through the utilization of data by financial institutions
  • Increased sophistication of technology, model construction and verification to facilitate data utilization

Blockchain

  • New technology developments to solve the challenges with public blockchains and the need for collaboration between stakeholders
  • Increase the security of public blockchain and crypto asset transactions
  • Creation of B2B use cases that leverage financial and supply chain data through private blockchains

API (Application Programming Interface)

  • In addition to effective API authentication, moving towards practical standards for the security of API connections internationally
  • Development of inter-industry, inter-business functionality (including eKYC — Know-Your-Customer) that connects financial and non-financial services through APIs

Business Innovation

  • The emergence of FinTechs focused on business support and social problems by providing platforms such as for business lending and busness succession (M&A)
  • Use of alliances & collaborations (rather than cross-shareholdings) to promote digitalization and innovation (corporate accelerators, etc.)

Key Findings — Detail

Artificial Intelligence (AI) — Leveraging Data

Advances in online lending using supply chain data by combining AI and Big Data

  • Daily cash flow forecast can be generated from data such as journal entries; even for companies with a short business history, one can combine journal entries with custom credit models to make lending decisions; a service that determines future sales forecasts from the reservation data of the service industry and connects them to credit worthiness has come to market
  • Individual scoring models increase incentives for data entry and can be used to determine credit conditions. thus resulting in better and more consistent lending decisions
  • Combining machine learning with traditional statistical methods, credit models can be further enhanced by using current supply chain data rather than only historical default rates

A changed approach to financial marketing through the utilization of data by financial institutions

  • Local data hubs can be created so that big data insights can be leveraged by small- and medium-sized companies
  • Raw data such as personal information is processed anonymously so as not to identify the individual, and it is used as aggregated data in a more effective and easy-to-use form, presenting new marketing opportunities
  • Marketing synergies can be developed through data collaboration between companies; while adhering to the protection of personal information, aggregated data can be exchanged, and a new analytical insights can be gained for customer marketing

Increased sophistication of technology, model construction and verification to facilitate data utilization

  • The rules determined by AI are based on experiments, and beyond conventional human ideas, they are capable of softly adapting to various changes; first of all, it is important to try using AI
  • It is possible to speed up model development and automatically create models by applying freely available open source algorithms; one can also develop software that automatically verifies model results, which increases verification potential
  • Effective data capture and preprocessing can be done in a visualized program; the process is done as a “white box”, so it becomes possible to validate; open model design and effective model verification are possible

Blockchain

New technology developments to solve the challenges with public blockchains and the need for collaboration between stakeholders

  • Development, such as lightning network, which solves scalability problems, is progressing at a fast pace, and discussions are becoming more and more active in international conferences; in addition, as a method of solving the blockchain scalability problem, specifications to lighten the encryption size of the electronic signature are also being considered
  • Regulators and engineers think of “privacy” differently even if they use the same words; there needs to be a place to promote and coordinate mutual understanding of the regulatory goals and the motivation for technological development
  • We are at a stage where we cannot succeed in the area of blockchain unless we find common ground between the interests of businesses, engineers and regulators

Increase the security of public blockchain and crypto asset transactions

  • The execution of suspicious transactions needs to be prevented in advance; the dark web and mixing services, etc. present high risk; the source and destination of remittances needs to be clear
  • It is important to share blacklist data, but we also need to consider ways to share whitelists in the future; on the other hand, an international security alliance is being launched, and a place where the best security practices are brought together and discussed is being formed
  • The key is whether we can provide safe and reliable “custodian” services in the future; major financial institutions will also enter this field, so there is the possibility of intense competition with startups

Creation of B2B use cases that leverage financial and supply chain data through private blockchains

  • In trade and other transactions, a private blockchain is used to make transactions more transparent through information sharing among stakeholders
  • Establishing a platform for high volume and high speed processing through a private blockchain
  • More than ever, BaaS (Blockchain as a Service), providing a platform for leveraging and implementing blockchain, will accelerate adoption

API (Application Programming Interface)

In addition to effective API authentication, moving towards practical standards for the security of API connections internationally

  • In the UK, the private organization OBIE (UK Open Banking Implementation Organization) supports open banking security standards, connection test environments, certification, etc., and implements UK API connections; on the technical side, there are some companies that offer services that can monitor and visualize API performance
  • For API connections between companies, there are certification authorities that support the authentication of connections with FinTech companies in Europe under the eIDAS system, and information sources to maintain the eligibility of regional connection service providers
  • In continental Europe, there are companies that provide their own platforms for API connections and act on behalf of multi-company connections equivalent to Japanese electronic payment agents

Development of inter-industry, inter-business functionality (including eKYC — Know-Your-Customer) that connects financial and non-financial services through APIs

  • It is important to look for and create a business model that enables new business-to-business collaboration using APIs; in order to do so, it is necessary to expand API collaboration, including non-financial services
  • With open innovation, we aim to create innovative and unique and valuable businesses and services; in the process, we will close the gaps presented by differences in standards

Business Innovation

The emergence of FinTechs focused on business support and social problems by providing platforms such as for business lending and busness succession (M&A)

  • For information about unlisted small- and medium-sized enterprises, we had to rely on researchers to date, but now the information available on the web has exploded in the last five to ten years
  • Business matching services can also be used for small business succession; in doing so, financial institutions also create synergies through the use of matching services; in particular, we will work in partnership with regional financial institutions to support local companies and revitalize the economy
  • It is possible to lower the hurdle to the level that even an individual accountant and a tax accountant can provide a series of M&A services
  • It is important to proceed with screening and the capture of customers in the first place by using a matching platform to reduce costs

Use of alliances & collaborations (rather than cross-shareholdings) to promote digitalization and innovation (corporate accelerators, etc.)

  • The aim is to create new businesses by encouraging corporate alliances through proof-of-concepts, and we have started to see positive results
  • We will continue our design thinking initiatives to identify various needs from the user’s point of view and connect them to new value; we will create an environment for product development based on such a mindset
  • We now see direct interactions between various players in Japan and abroad who have never been connected before, and see the idea of creating new businesses from a more casual relationship developing; the objective is to build a win-win relationship with each other

If you found value in this article, please “clap” (up to 50 times).

This article is part of our Tokyo FinTech Publication, please follow us to read more from our writers, like hundreds of readers do every day.

Should you live in Tokyo, or just pass through, please also join our Tokyo FinTech Meetup. In any case, our LinkedIn page, Facebook page and our Instagram account are there for you as well.

Tokyo FinTech

一般社団法人 (General Incorporated Association) Tokyo FinTech is registered as a non-profit organization in Japan, promoting the domestic ecosystem through innovation

Norbert Gehrke

Written by

Passionate about strategy & innovation in Japan. Connector of people & ideas.

Tokyo FinTech

一般社団法人 (General Incorporated Association) Tokyo FinTech is registered as a non-profit organization in Japan, promoting the domestic ecosystem through innovation

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade