Catching up with the Japanese fintech space

Toshio Taki.

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This article is part of Tech in Asia’s partnership with Disrupting Japan where we publish the revised transcripts from the show’s podcast interviews with Japanese entrepreneurs. This is heavily revised from the original transcripts. For the full interview, go here.

A few months ago, I sat down with Toshio Taki. He is the co-founder of Money Forward, a personal finance app in Japan.

Taki studied under Peter Thiel at Stanford before co-founding the startup. He’s also an advisor to Japan’s Financial Services Agency (FSA) and the head of the Fintech Institute of Japan.

In the interview, we talk about the Japanese government’s blueprint to foster financial innovation in the country and why Japan’s financial sector is about to become a lot more competitive.

nWhat is Money Forward?n

Money Forward operates two types of businesses. One is B2C, where we have people put in their internet banking account details and then make them a very simple P&L statement.

The other half is B2B. We operate a cloud-based accounting SaaS service targeted toward SMEs. The businesses in our platform either employ our accounting software or our invoicing package.

We use a freemium revenue model for B2C. For B2B, it’s much more like a SaaS model, where we provide trials. We have a US$10 a month plan for proprietors and US$40 or US$50 models for larger companies.

nWere you building a Mint for Japan?n

Initially, I was thinking about doing a Mint-like service in Japan, but whenever you try to just import a service into Japan, it doesn’t work very well. Different countries are different. That’s very, very evident in the B2C industry.

The Mint model doesn’t suit Japan because it relies on two very basic facts: Americans take care of their credit scores and they don’t want to miss out on their billing. This demand is not as evident in Japan.

nHow is Japan’s financial regulatory climate?n

The regulatory climate has been going in our favor for the last two years or so. The Japanese banking law was amended twice to basically open up APIs for venture companies and bring better financial services to end clients.

So, we’ve been creating a collaborative atmosphere between venture companies and the banks.

nHow do you get your data? Are banks opening their APIs?n

In the past 15 months or so, 10 banks have opened up their APIs in the country. This is the largest number in the world. In the US, France, or London, the number is also significantly high, but in many cases, they connect to bank accounts through either screen scraping or having a dedicated server to do screen scraping. In many cases, it’s not the API-based protocol. If you try to look for banks with this API window, it’s still very scarce.

This banking API initiative has been in discussion for about 20 years, but the seriousness of this debate only came out three or four years ago. Why is this so important? Simply because it creates better financial services.

nAre banks supportive of new initiatives?n

Japanese banks are very open to innovations. They are very fast to admit that there are new services that have gained a lot of traction in the last few years. They have also acknowledged that creating the same software inside the bank would take three or five times as much effort. As smartphone users themselves, they acknowledge the difference in user satisfaction.

There are small issues on how we can govern the security standards of these small players, the ones who will connect to the banking APIs. We have to maintain that sense of security.

nWhat are the most important fintech developments in Japan?n

We’ve advocated a lot about APIs, but I think in three or four year’s time, the word “cashless” will be a trend.

The Japanese banknote only circulates six or seven times after they are printed and before they are collected again, so our banknotes are less smelly. There is a rationality behind holding cash, but when you think about the developments in China—where you can’t live without WeChat—you realize that this world is already available.

Japan is a little faster in this sense. We’ve had mobile phone payments since 2001 called osaifu-keitai, but it didn’t really penetrate for a long time.

nDo you think that banking itself will ever really be disrupted?n

In China, you are already witnessing this reverse world where Alibaba and WeChat are governing citizens’ money. The US landscape might also change if Google or Apple opens a bank. The same might hold true for Japan, where already communication software have payment functions so you can send money for free online.

Gradual shifts always happen, and the internet is about empowering individuals. If banks remain the best provider of trustworthy information, then they’ll hold the same presence in the economy. But if banks lose this advantage, then many things will be so-called “democratized.”

Disruption is a very wrong word for the banking industry. It’s about the shift in people’s perception of what trust is.

nIf you could change one thing about Japan, what would it be?n

The whole notion that the Japanese economy has been eroding or fading for the last 30 years.

This is simply because the Japanese economy is aging. If you have a reversed population pyramid, of course the demographic will shift toward the elderly society. People think this “silver economy” is a bad thing, but the best solution is just to have a more non-pyramid demographic structure.

Read more from this series here.