Pioneering Unexplored Areas

Japan has been at the forefront of innovation in the asset management—and the broader financial services—industry in Asia, with a number of new and incumbent players rolling out robo-advisory services. Robo-advisors are online platforms that offer investment advice based on sophisticated algorithms mapping portfolios that can look at investment performance across asset classes in real time.

While there is vast potential in this area in Japan, the gains made by the robo-advisory industry may be limited if it does not strive to improve investment literacy and enhance accuracy and transparency of information.

Current robo-advisor initiatives in Japan are largely tailored to support the sales of mutual funds. As easy-to-use, non-face-to-face services, they are garnering interest from investors comfortable with information technology and a degree of financial literacy.

Moving forward, further advancements that draw on both asset management options and technology are expected in the following areas:

  • Diversity of products. Expanding the range of products offered from general, publicly offered mutual funds to a variety of asset classes.
  • Diversity of services. Online onboarding, portfolio management, reports and alerts. Operation support that is a hybrid approach, harnessing both existing contact centers and face-to-face services.
  • Automation. Automated reinvestment and rebalancing. Supporting small-value and high-frequency trading.
  • Accommodating business-to-business (B2B). Pro-level sales support tools developed to offer the advanced features professionals want. Vendor-supplied cloud services and financial institution-supplied white-label service offerings for other financial institutions.

 

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Robo-Advisory in Japan: A Need to Push the Envelope

Robo-Advisory in Japan: A Need to Push the Envelope

Robo-advisors: Booming in Japan
http://asianbankingandfinance.net/financial-technology/commentary/robo-advisors-booming-in-japan

Fintech and Robo Advisors: Booming in Japan
http://celent.com/reports/fintech-and-robo-advisors-booming-japan

証券決済革命

日本の証券決済制度改革は2000年頃に本格化した。15年の歳月を経てDVPは実現し、STPは幅広く普及した。そして、今まさにその最終ステージに差し掛かり「証券決済革命」の時代を迎えている。

日本の証券決済制度改革の経緯において、以下の4点は重要なマイルストーンであった。

  1. RTGSと照合システムの構築、STPの普及(2001年)
  2. 証券保管振替機構の拡充と株式会社化(2002年)
  3. CCPの設立とDVP決済の進展(2002-3年、2007年)
  4. 株券の電子化(2009年)

現在の日本における「証券決済革命」の残された課題は、以下の5点に集約される。

  1. 国債、株式等の決済期間短縮化への取り組み
  2. 清算機関(CCP)の機能拡充、利用拡大、連携・統合への取り組み
  3. 証券決済機関(CSD)の機能拡充
  4. 市場参加者におけるSTPの加速
  5. クロスボーダー証券決済の円滑化

証券決済システム高度化の経緯

161130_fig1 

セレントは、こうした日本の証券決済革命の動向を基軸に、金融業界のレガシー&エコシステムマイグレーション、イノベーション、そしてエマージングテクノロジーの可能性をレポートしている。

本証券決済革命シリーズにご期待下さい。

資金決済革命

決済を取り巻く環境は劇的に変化しつつあります。消費者がキャッシュに代わるより便利なものを求めていることは明らかですが、金融機関はこうしたニーズにあまり積極的に答えようとしてこなかったように思われます。一方、この分野は、金融サービスプロバイダにとっては、ブルーオーシャンのようにチャンスが広がっているといえるでしょう。先駆者として新たな決済プロジェクトを投入できる新市場の成長が期待できるからです。
 
既存の決済サービス市場は競争が激化しており、多くの決済オプションが溢れかえったレッドオーシャンです。市場参入を目指すプレーヤーが既存の市場で成功を収めようとするなら、既存の決済手段に取って代われる価値提案を創出する必要があります。 企業活動や消費者の生活により密着する方法を開発しなければなりません。そうなると、金融サービスをめぐる競争のカギは金融業界の外にあるのかもしれません。YouTubeやリッツ・カールトンのような顧客認知、Google やAmazonのような顧客行動予知などがその例です。
 
未来の個人向けの決済サービスは、デジタルネイティブ世代の日常生活における新たな情報と価値移動の基盤として、既存の電子マネーを凌駕する破壊力を持つでしょう。未来の 法人向けの決済サービスは、決済指図と契約を電子化、自動化することで、企業活動の情報と価値移動の源泉を握り、既存のサプライチェーンを革新することが期待されます。

セレントはここに、破壊的なイノベーションと「資金決済革命」の可能性を見出します。

Uncontested market space

The payments environment is undergoing dramatic change, driven by the changing behavior of payment services users. While consumers have clearly expressed a desire for something more convenient than cash, the supply side has been seemingly unwilling to meet this demand. Financial institutions have failed to provide handier and more convenient alternatives to cash. Service providers should see this field as a blue ocean – a market space ripe for pioneering new payments initiatives.

The intense competition over incumbent payments services makes that market a red ocean – a market space crowded with many existing payments options. Would-be players need to create value propositions that can supplant existing payment methods if they wish to succeed. They need to develop ways that allow them to be more intimately intertwined with the activities of corporations and the lives of consumers . Indeed, the key to competition in financial services may lie outside the financial industry, coming from services and businesses that specialize in knowing the customer such as YouTube and Ritz-Carlton.
 
At Celent, we believe that new payments services for retail customers will be a watershed, replacing existing e-money and serving as a platform for information transfer and value transfer for a digital native generation. Next-generation transaction banking services for corporate customers will enable the overhaul of existing supply chains and the exercise of tighter control over corporate information and value transfer through digitizing and liberating contracts and settlement.
 
Celent sees great potential for significant innovation and a "payments revolution" from firms willing to challenge the status-quo despite the apparent immediate obstacles.

THE FUTURE OF ROBO-ADVISOR SERVICES IN JAPAN

Technology and New Business Frontiers

Megabanks, startups, and dedicated online brokers are all jockeying to leverage their strengths in a way that accords them the most advantageous position possible. The latest iteration in the ongoing battle to be first, to move early, and to outdo the competition is unfolding around robo-advisor services and technology with a key point being which customer categories to target.

Historically, the asset management business in Japan has revolved around the relatively lower-hanging fruit: customers that have both assets and financial literacy. Moving forward, that will change. It will be important for players to expand the market’s reach to include customer segments in the stage of asset creation, namely younger generations in the midst of becoming financially literate and the senior demographic of customers with little experience with technology. Early robo-advisor movers pushing the boundaries of the market and acquiring new customers will be crucial if robo-advisory services are to gain traction and not become a fleeting phenomenon. Many progressive global examples of companies and markets are responding to diverse investment and technology needs and, in doing so, helping to boost financial literacy across the market.

The robo-advisor initiatives that have hit the market in Japan so far largely appear tailored to support the sales of mutual funds. As easy-to-use, non-face-to-face channels, they are garnering interest from investors with a level of comfort with IT and a degree of financial literacy. Moving forward, further advancements that draw on both the asset management facet and technology are expected in the following areas.

  • Diversity of products: Expanding offerings from general, publicly offered mutual funds to multi-asset classes.
  • Diversity of services: Online onboarding, portfolio management, reports, and alerts. Operation support that is a hybrid approach harnessing both existing contact centers and face-to-face channels.
  • Automation: Automated reinvestment and rebalancing. Supporting small-value and high-frequency trading.
  • Accommodating B2B: Pro-level sales support tools developed to offer the advanced features professionals want. Vendor-supplied cloud services and financial institution-supplied white-label service offerings for other financial institutions.

 

Sell Side Business Model

Overcoming the first obstacle presupposes a shift in the competition among firms marketing mutual funds. This would entail a move from the conventional model, under which they vie for short-term sales commissions, to a longer-term model in which revenue is generated from discretionary investment fees. Already, the number of wrap accounts is growing quickly as major players migrate rapidly to a wrap-account approach premised not on sales commissions but on discretionary investment fees (for investment services offered on a contractual discretionary basis that include investment choices, actual purchase or sale, and regular reports).

FIG 4: Surge in Wrap Accounts

robo4

This surge in wrap accounts has spurred debate. Observers point to issues in products, service content, and management performance; in concrete terms, this means the fee structure (major firms say that they typically charge a total of around 3% for mutual fund advisory fees, transaction and management fees, and fees related to mutual funds), minimum contract amounts (major players accept contracts from 3 million yen in increments of 10,000 yen), and investment types (wrap account-dedicated mutual funds, programs combining actively managed funds, programs combining index-managed funds, etc.). Celent would like to believe that the proliferation of robo-advisors will enhance product offerings and advice across the investment cycle overall. The advent of mutual fund sales professionals (major banks and securities brokers) adopting robo-advisory technology can be expected to be the dawn of a new technological era not solely for wrap accounts, but also more broadly for the mutual fund business and the asset management business.

Celent believes that Japan’s asset management business sector currently faces two challenges that must be addressed particularly on the sell side.

  • Information imbalance: This refers to an imbalance or asymmetry in the quantity, quality, or use of information related to investment products or services. The market is flooded with investment information. However, there is a shortage of information and advice to cut through the noise to aid in reaching investment goals and to help prospective investors select products that match their risk appetites among the vast array of investment choices.
  • Know-how imbalance: This refers to an imbalance in recommending appropriate investment products and services as well as know-how related to investor management and development. The market is awash in investment know-how. Nevertheless, there is a shortfall of accurate understanding of investor orientation and experience. This is coupled with a lack of help for investors to optimize their portfolio holdings, subsequent follow-up, and advice to achieve investment objectives.

 

Just published the new Celent reports:

Fintech and Robo Advisors: Booming in Japan

 

END DESTINATION OF THE BOOM

Robo-Advisor Services: The Road Ahead

The fundamental essence of financial system services will remain, but with innovation, the inconvenient and irrational elements of the industry will be eliminated, falling by the wayside. The first touchstone for this will likely be the battle among robo-advisor services. With Japan’s highly integrated industry, mutual funds have from the beginning grown in the context of a modular (or unbundled) business structure. In the future, the insurance industry is expected to experience a similar change. It is only natural that bancassurance accelerates such structural change.

On the demand side, robo-advisor offerings are expected to play a supporting role in particular with retail investor asset management in terms of the (PDCA) cycle (which in this context refers to setting fund management goals, selecting and purchasing products or services, post-purchase review “checks,” and ongoing action). On the supply side, expectations are high that robo-advisors will yield benefits in B2B via functions that enable support tools geared toward professionals in the asset management arena. Moreover, observers have even loftier expectations that robo-advisors can play a role in enabling the asset management market to evolve into a sounder and more cyclically sustainable market.

Celent expect that robo-advisors in Japan’s market will work to supplement investment literacy on the demand side, heighten accuracy and transparency related to information (including price, quality, and risk) about asset management products and services, and supply technology that will help to solve the incentive problems that interfere with efficient business transactions on the supply side (and the oligopoly of the value chain).

From a technical perspective, there are three important points that would make the robo-advisor initiatives become widely accepted and profitable:

  • Use of refined smartphones with easy operability and robust security, providing a high-quality user experience.
  • Ability to provide diversity of products and services, low-value and high-frequency trading support, and automation.
  • Ability to (conduct / carry out) traceability and rebalancing, where assets are vigilantly monitored, and plans can be reviewed and revised accordingly.

FIG 7: Expectations for Robo-Advisors

robo7

 

Shift to the Modular Structure

It is incumbent upon the financial industry as a whole to shift to a modular demand structure to meet new demand spawned by new digital technologies and new demand in the digital industry. Institutions should ease their dependence on vertically integrated, direct sales — that is to say, keiretsu sales channels — to establish more dynamic and open delivery models. The demands and challenges of omnichannel transcend choosing an open or closed channel; rather, these demands proffer an ideal opportunity for companies to review and reconsider the optimal delivery model for their needs. Moreover, this means that financial institutions can collaborate with a wide range of non-financial sector entities including startups to broaden access to and the scope of the market that they can potentially claim as their own.

Financial institutions should strive to become trailblazing purveyors of financial services that leverage digital technology. In the financial services value chain, areas coexist where firms can and should go it alone to generate their unique in-house high-value-added services and products as well as other areas where they stand to benefit by collaborating with other firms to thoroughly drive down costs. Also, if firms thoroughly consider economies of scale and economies of scope, they can possibly parlay their cost centers into new profit centers and play a role in the industry infrastructure by collaborating with other firms. In the actual operation, after deliberating and implementing such initiatives, big-data analytics and automation of all processes will prove key. Here as well, a shift to a modular supply structure will be required, and a critical factor in determining the success of financial institution management will be alliances — namely how adroitly they select and choose to partner with other entities.

Fintech is much more than the application of novel technology in the sphere of financial services. Rather, it portends nothing less than a wholesale structural overhaul of the financial services industry that is an opportunity to envisage anew and redefine the industry’s future. There can be no doubt that Fintech transcends the mere establishment of a digital channel. Instead, it will clearly affect products, services, IT units, and sourcing models and, in so doing, provide the financial service providers of the future a chance to seriously consider exactly what kind of companies they would like to be and the corporate cultures they would like to foster.

FIG 8: Key Transformative Points in the Financial Services Industry

robo8

 

Just published the new Celent reports:

Fintech and Robo Advisors: Booming in Japan

 


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