During his keynote speech at the recent FINSUM conference, Yoshitaka Kitao, President & CEO of SBI Holdings, laid out the company’s ambition to become Japan’s fourth mega banking group alongside the incumbents Mizuho, MUFG and SMBC, through co-creation with regional banks. He described the approach in three phases.
Phase I — Regional Revitalization
The first phase is characterized by the creation of trust with regional banks, and the clarification of the positioning of the respective parties. SBI provides products and services to regional banks.
As a securities intermediary, SBI has signed up 35 regional banks for these services, with an additional four currently in discussion. SBI has also established a corporate finance department that currently serves 308 clients, with $76.6bn in securitizations executed since December 2015.
SBI Money Plaza has been created as a “shop within a shop” by SBI Securities, initally piloted with Shimizu Bank and Chikuho Bank, and is now available in seven regional banking outlets. Additional collaborations have been established in the life & non-life insurance businesses.
As far as SBI Investment is concerned, 28 regional banks have invested in the FinTech Fund, and 56 regional banks invested in the AI & Blockchain Fund. Out of the total portfolio of 147 companies, 7 are expected to IPO in 2019, 19 in 2020, 37 in 2021, and 70 in 2022, so a path to the public markets is fairly well defined.
Phase II — Intermediate Holding Company
The second phase is characterized by the creation of an Intermediate Holding Company (IHC), SBI Neo Financial Services, in July 2018.
This includes SBI FinTech Incubation as one of the subsidiaries, with the objective of supporting the introduction of new FinTech services at regional financial institutions , including the construction and provision of an open API platform. SBI holds 60% of the company, Softbank 20%, and IBM Japan and Toppan Printing 10% each.
A series of alliances and joint venture companies have been created with promising FinTech startups from overseas like Wefox (January 2019) and Antworks (February 2019). It has also created the Ripple-powered cashless payments app Money Tap, with 13 regional banks added as co-founders in March 2019 (and as of today, 29 regional banks invested).
Lastly, focusing again on revitalization, the largest business succession and M&A platform “TRANBI”, operated by Travi Co., has entered into an alliance with SBI Securities and will also be used to support the “Regional Business Sucession Fund”, which had been set up to acquire regional SMEs without a successor, and manage the entities within a portfolio to streamline and combine them as appropriate.
Phase III — Joint Holding Company
The third phase is characterized by the creation of a Joint Holding Company (JHC) with participation by the regional banks.
During this phase, regional banks are expected to expand nationally, and even overseas. Common functions such as AML (Anti-Money Laundering) and KYC (Know-Your-Customer) can be shared and jointly invested in. Generally, regional banks are suffering from too high system costs. Through the application of cloud technologies, fixed costs can be turned into variable through monthly subscription fees, and regional banks can share common systems in a private cloud operated by SBI. Also, many regional banks do not have the personnel and the expertise to conduct asset management business. Multiple regional banks can share an asset management function, or SBI can perform asset management on their behalf, again leading to cost reductions.
Additional developments are expected from SBI Neo Mobile Securities, SBI Sumishin Netbank and international remittance (SBI Remit) as well as trade finance. SBI Neo Mobile Securities will offer close-to-zero fee stock trading — a JPY 200 monthly fee will allow for unlimited trading. The company has signed up 100,000 new accounts from April to August 2019; the popular rewards points scheme T-Points will be integrated, and T-Points can be used to buy stock.
On the insitutional side, SBI JapanNext , Japan’s largest PTS (Proprietary Trading System), implemented Smart Order Routing (SOR) at the end of August. “SBBO-X” (SBI Best Bid Offer) provides a dark pool in domestic stock spot transactions using SOR, matched by SBI Prime and executed on the exchange’s off-the-counter market (ToSTNeT).
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