Comment on “Why Fintech Is Not Changing Japanese Banking”

Iwashita (2022) argues that Japan's FinTech is underdeveloped as banks and their customers, especially the elderly and conservative corporate customers, cling to the traditional financial service formats. He further argues that the supremacy of banking services before the Internet era may have hindered changes on the supply side, that is, the service level was sufficiently convenient therefore the relevant parties did not want to expose themselves to the risks of cyberattacks and the costs of system renewals. Iwashita also mentions that the aging population may have worked against digitization due to the low digital literacy of the elderly.

Iwashita (2022) also touches on the possibility of near-future developments, to be prompted by the global advancements in digitalization, the supporting attitude of the Japanese government to promote technological progresses, and the changing attitudes of customers. The change of tax filing obligations expected in 2023 is also mentioned as a factor which may promote the electronification of receipts and invoices, leading to more digital payments.

I agree with most of the points presented in Iwashita (2022). While Japan's FinTech industry became active in around 2015,¹ which almost coincided with the timing of the start of FinTech activities in other parts of the world, the progress of less-cash and more-efficient financial services has been slower in Japan in comparison to her international peers since then. As Iwashita indicates, the Covid crisis has accelerated the change of attitudes of financial institutions, customers and the government in Japan.

To further deepen the analysis and enhance the value of the recommendations presented by Iwashita (2022), I would like to suggest following points.

First, to expand the list of possible actions by banks and the government to promote FinTech in Japan, it may be worthwhile to identify changes of the payment systems in some European countries achieving less-cash status while, like Japan, their societies are aging and their banking systems are well developed. Sweden, where cash usage has decreased in an extraordinary manner (Riksbank (Sweden), 2017; Bach et al., 2018), suggests that the central bank's actions to promote an effective cash handling system by imposing the costs on to the private sector, and technological developments to make digital methods cheaper and more convenient may have contributed to the extraordinary rapid decline of cash usage. Another analysis (Riksbank (Sweden), 2020) offers the hypothesis that the combination of a couple of events, such as the introduction of mandatory receipt issuance for cash and the popularization of a bank-consortium-led digital payment application, made cash less attractive to digital methods. By learning from these examples, Japan may be able to build concrete action plans to promote FinTech.

Second, the discussion of the possible risks of digitalized financial services, and solutions to such risks, may be appreciated as the negative consequences need to be considered in the promotion of FinTech. For example, the Bank of Japan has mentioned some concerns over a private sector-driven cashless society, such as the imperfect substitution to legal tender cash payments in light with the level of security or the geographic distribution, and concluded that the issuance of Central Bank Digital Currency might serve as the solution (Bank of Japan, 2020). It may also be useful to list the desirable features of FinTech services to reduce potential problems, such as security, resilience, universal access, the instant payment capability (settlement finality), and interoperability.²

I would like to conclude my comment by echoing Iwashita's remark to put the importance in the “meeting users'” needs and providing greater profitability. The final goal is not the promotion of FinTech itself, but the improvement of the productivity from the users' viewpoints. I believe the root-cause analysis of the current status presented by Iwashita (2022) will greatly contribute to the near future changes of Japanese banking industry.