ON THE DISMANTLING OF ‘BEDROCK’ REGULATIONS, Part 3

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Mar 19th, 2015

Japan’s financial market is also home to outdated bedrock regulations.

Background:
Currently in Japan there are approximately 270 Shinkin banks (Credit Unions). On average, these average a deposit balance of around 500 billion yen and loans of 300 billion yen, with some large Shinkin banks that exceed regional banks in size.

Joining Forces:
The January 2015 announced merger of Ogaki Shinkin Bank and Seino Shinkin Bank was premised on a proactive business strategy looking five to 10 years in the future and taking into account the shrinking population and economy. The new entity will boast a post-merger total of 700 billion yen in deposits, falling in the realm of mid-tier financial institutions and with a notably high capital adequacy ratio. With Ogaki boasting a capital adequacy ratio of 12% and Seino 15%, this union of banks—which could go it alone—speaks to a strategic move to maintain or enhance regional market share and consolidate forces to achieve greater economy of scale. Both institutions are located in central Japan’s Gifu Prefecture, which is home to a number of robust regional institutions including Juroku Bank (assets of 5.0 trillion yen), Ogaki Kyoritsu Bank (assets of 4.2 trillion yen), Gifu Shinkin Bank (assets of 2.1 trillion yen), and also one of the few areas of Japan that is enjoying staunch competition in retail banking. This merger can also be seen as hinting at things to come.

Outlook:
The dominant take is that strategic partnerships and mergers will proceed apace among institutions of suitable scale and sound management until an appropriate number for the market has been reached. A trend similar to that witnessed in the U.S. credit union industry is expected, in which as the hurdle to survival has risen, especially in urban areas, many credit unions boasting assets in excess of 2 trillion yen are created. It would seem moving forward that in addition to scale, financial soundness, and operational efficiency, that having a strategy that focuses on offering niche services that fill local needs will prove essential.
(Lessons that can be learned from developments in the U.S. credit union industry are addressed in detail in the below Celent report.)

Challenges and Strategy:
From the perspective of efficiency, regional financial institutions will for the most part operate in partnership with other institutions using a shared center system rather than operating such systems themselves. This will solve cost and resource challenges, but at the same time could hamper efforts to offer unique products and services when it comes to taking advantage of IT. In addition, until now there have been other system–related obstacles to partnerships and mergers across regions. Outdated “bedrock” regulations remain. You might say this area of the industry has been protected by virtue of the system. However, the largest impediment would seem to be human resources. We hope to see strategic and proactive initiatives taken by networks of financial institutions and overarching bank entities such as the Shinkin Central Bank.

Partnerships and mergers taken with strategic intent are urgently needed. For example, Shinkin banks, which boast freestanding shop networks, manpower to undertake business activities, and with strong local ties, by joining forces with dedicated online players (in banking, insurance, and securities), with their robust online sales and powerful national mass-marketing capabilities, could quite conceivably realize strategic online-to-offline (O2O) channel development and omnichannel marketing. If they can do this, then they can be expected to devise unique services that set them apart from megabanks and mega-insurers and—in this time of shrinking populations and declining local economies—create novel financial service delivery models. In doing so, key success factors can be expected to boil down to the use of technology and human resources.

 

Catch CU: The Ongoing Evolution of the Credit Union Market

Mobile Payments in Southeast Asia

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Mar 17th, 2015

With the rapid growth of smartphone penetration in Southeast Asia, e-commerce and mobile commerce is one of the hottest issues in the region. Not only local players but also global e-commerce players have entered into the region to expand their business. However, a number of Southeast Asian countries still have low banking account penetration rates, hence people may not have access to payment methods for e-commerce and mobile commerce.

Mobile payments may be one of the solutions for e-commerce payment. With the growing popularity of e-commerce and m-commerce, mobile payments is receiving more attention than before. Not only global mobile payments players such as PayPal but also local players like MOL, Fasspay, 2C2P, Smart Money, and GCash operate business in Southeast Asia.

Some Southeast Asian countries still have a relatively high level of unbanked population but mobile payments is rapidly being accepted in the region because smartphone penetration rates are growing much faster than bank account penetration rates.  Also, people can hold a mobile payments account without a banking account at some mobile payments services.

However, there are some obstacles to the future growth of mobile payments in Southeast Asia. A number of people are not well aware of mobile payments services, hence mobile payments players should invest more into marketing activities, although investment in infrastructure and equipment is also important.

A number of payments players are considering entering into the Southeast Asian mobile payments market, but they may face difficulties to set up their business in the region. Each country has different regulations, telecommunications infrastructure, payments infrastructure and financial environment. Players who consider entering into the market should develop strategies to fit each country’s conditions.

Celent believes that mobile payments in Southeast Asia will grow strongly for the next few years because the infrastructure is already in hand and smartphone penetration is still growing swiftly. Celent will keep an eye on this trend and update the trends in upcoming reports and blogs.

ON THE DISMANTLING OF ‘BEDROCK’ REGULATIONS, Part 2

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Mar 12th, 2015

Stubborn “bedrock” regulations remain in Japan’s financial market.

These are embodied by proposals to expand the operation of Tokyo Stock Exchange (TSE), which at five hours daily has shorter trading hours than both London and New York, and to make interbank payment transactions real time 24 hours a day year-round.

Last November, TSE announced that it was going to delay introducing longer trading hours for stocks (1). The bourse said that it had explored expanding trading hours with a focus on night trading, but had been unable to get the majority of brokerage houses to sign on. TSE believes that even expanding trading is not necessarily a recipe that can be expected to attract diverse market participants—all of which points to strong fears that Tokyo’s international competitiveness will falter.

Meanwhile, the Japanese Bankers Association (JBA) last December pledged to offer world-leading payment services. These new services are to be expanded to cover what have been non-business hours, such as nights, weekends, and holidays. Toward this end, the organization committed to establish a new year-round, 24-hour platform that will enable funds to be sent between banks in real time (2). At the same time, when reporting on this story, The Nikkei, Japan’s leading business daily , noted only that the JBA had decided to launch a new interbank system that would be active 24 hours days, omitting the information about real-time interbank payments being made possible around the clock year-round because there are banks that are not keen to extend business hours and it is not clear when in fact this will be up and running (3).

Deregulation and technological progress are the two wheels that propel the vehicle of innovation forward. The proliferation of digital technology heightens the possibility of technological innovation catching on. At the same time, deregulation creates opportunities for the application of innovative technology. The dismantling of “bedrock” regulations of massive scale and, beyond that, establishing a growth strategy will not happen minus collaboration on the part of government—that is to say financial regulatory authorities—and entrepreneurs or corporations —namely financial institutions and financial service vendors. Put another way, if these entities can work well together—with motivated businesses with expertise in digital technology and a government-backed growth strategy initiative functioning as two wheels advancing in tandem—then innovation can be expected to accelerate.

Digital technology that can be used to realize innovation is already here. The challenge is to create opportunities to apply it—opportunities that presuppose the dismantling of these bedrock regulations.

 

(1) Tokyo Stock Exchange (TSE)

(2) Japanese Bankers Association (JBA)

(3) January 9 edition of Nikkei

 

ネット専業銀行イベント参加の所感@ソウル

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Mar 10th, 2015

本日、韓国ソウルで開催されたネット専業銀行に関するイベントにご招待いただき、日本のネット専業銀行の現状などについて講演して来ました。日本のネット専業銀行の事例は世界的にも多く取り上げられていますが、今回は、これまでに行なったインタビューを基に、私の見た日本のネット銀行の現状をお伝えしてまいりました。

講演後、多くの方とご挨拶をさせていただきましたが、聴衆のお役に立てたようで大変うれしく思うと共に、本件への関心の高さを実感しました。

来場者にお話を伺うなかで、いくつか共通の関心事項が浮き彫りになりました。

  1. ネット銀行設立にあたって、最も望ましいビジネスモデルは何か。
  2. 日本の各ネット銀行は、どのように差別化を図っているのか。
  3. 流通業主体のネット銀行のビジネスモデルを知りたい。

韓国では、昨年末あたりから、専門家を集めた委員会を構成し、ネット専業銀行の設立許可に向けた議論が進められています。日本で築き上げてきたノウハウを研究したいと言う企業や銀行が多く、今後、ベンチマーキングのために訪日したいとの声も多く聞こえてきました。

日本のネット銀行の持続的な成長曲線を見て、学ぶべき点が多いと感じている韓国企業が大勢います。日本のネット銀行との提携も十分に考えられる選択肢でしょう。今後の動向をセレントでも引き続き追っていく予定です。

同様のご関心をお持ちの方や、日本から見た韓国銀行業界についてのご認識など、ぜひお聞かせください。

ON THE DISMANTLING OF ‘BEDROCK’ REGULATIONS, Part 1

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Mar 9th, 2015

Prime Minister Shinzo Abe launched his third Cabinet in late December 2014.

Subsequently, it has spelled out a basic policy to revitalize Japan’s economy as formulated by the Headquarters for Japan’s Economic Revitalization (1). In it, the government pledged that Japan will create new markets and new business opportunities by reforming the so-called bedrock regulations in areas such as agriculture, employment, healthcare, and energy.”

Bedrock regulations refer to firmly entrenched regulations that parties with vested interests—typically government organs, administrative institutions, or industrial groups—oppose reform, which makes the loosening or dismantling of regulations far from easy. Since the 1980s, the government has pursued deregulation in many areas with an eye to facilitating economic growth. However, bedrock regulations are the areas that have faced strong resistance from parties with vested interests, and, consequently, they have been put off for years and years—that is until now.

There are several laws that are subject to this debate, laws such as the Road Transportation Act, the Pharmaceutical Affairs Act, the Medical Practitioners Act, the Food Sanitation Act, the Agricultural Land Act, the Health Insurance Act, the Social Welfare Act, the Radio Act, and the Worker Dispatch Law. However, there exist other “bedrock barriers” to growth that are non-legal and unrelated to existing systems and arrangements.

This article uses the bedrock regulation removal debate to search for and expose potential innovation opportunities.

 

On Labor Market Reform
Efforts to remove so-called bedrock regulations in Japan continue.

Following the announcement of a plan to implement reform at the intersection of the fields of agriculture and finance via regulatory changes to affect the Central Union of Agricultural Cooperatives, widely known as JA-Zenchu (which overseas a body of agricultural cooperative organizations nationwide known as JA) (2), the media reported that labor system reforms that will cut across all industries are also in the pipeline (3).

The global market has entered an era of hyper competition in productivity. In conjunction with this, companies will pursue the automation of business processes using digital technology as well as a shift to self-service. As such, existing labor regulations will no longer apply and will be rendered outdated. Consequently, the focus of labor regulations will be required to shift to work that requires human intelligence or that is otherwise not amenable to digitization.

Celent has long advocated deregulation and technological progress/innovation as an opportunity to innovate and driver of innovation. The proliferation of digital technologies boosts the possibilities of technological innovation and, at the same time, deregulation offers an opportunity for innovative technologies to be applied.

In addition, and on a different note, Celent hopes to see the creation of new employee incentive plans as a way to accelerate growth strategies. Western stock-based incentive systems epitomized by stock options have come with an array of obstacles . If a new, Japanese compensation sharing plan that links corporate results with individual compensation can be created, then it is likely that highly motivated entrepreneurs well versed in digital technology, coupled with the backing of a nationally driven initiative to back a growth strategy, will be able to accelerate innovation.

 

金融持ち株会社規制の見直しを成長戦略に繋げるもの

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Mar 4th, 2015

金融審議会における「金融持ち株会社規制の見直し」着手が報道された。(1)

持ち株会社の傘下に置ける事業会社の範囲を広げ、銀行グループが電子商取引や新たな決済サービスなどへの参入を容易にすることが期待される。

既に、インターネット専業を含む新設銀行の業績は伸張し、流通業界からの参入企業は購買履歴と金融資産情報を活用し、クレジットカードのショッピング利用と意欲的な住宅ローン商品の投入により、顧客基盤と収益基盤を拡充しつつある。

また、携帯電話各社は、決済サービスを自社顧客の利便性向上からプレミアサービスの提供へ発展させている。通信、銀行、路面店、オンラインショッピングといったオムニチャネルでの顧客とサービスの融合とその先の「プレミアムサービス」を目指した戦略を競う。

規制緩和と技術革新は、イノベーションの両輪であり、デジタル技術の普及は、技術革新面での可能性を高め、一方で、規制緩和は、革新的な技術の適用機会を提供する。この機会を成長戦略に繋げるために、最も必要なものは、技術を熟知した企業家の旺盛な事業意欲と考える。これまでのところ、デジタル技術を活用した新たな決済サービスのイニシアチブは、流通や通信といった非金融系事業者に多い。(2)

新たな「岩盤」の融解を前提とした、破壊的なイノベーションの創造意欲を待望する。

 

(1) 金融審総会を来月開催 持ち株会社規制見直し(日経)

(2) 以下のセレントレポートを推奨する
日本の金融業界におけるイノベーション:リテールペイメント市場における動向

 

Alipay Entering into South Korean Market

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Mar 2nd, 2015

During the Lunar New Year, more than 100,000 Chinese visited South Korea. The way people shop in a duty free shop, or in a convenience store is quite different than before: They pay with the world’s well-known Chinese mobile payment, Alipay, the most successful case of Fintech in the world.

In Seoul main streets and on Korean internet sites, we can easily find advertisements of Alipay. China UnionPay already entered into the South Korean market, and even a brand of my credit card issued in South Korea is UnionPay. They partner with BC Card, South Korea’s card issuer and they have been expanding their business in South Korea.

China’s payment has entered into South Korean market in earnest and South Korean players have been getting into the game. T-money, the largest prepaid card player in South Korea and Hana Bank, the fourth largest bank in South Korea partnered with Alipay.

As an example, Chinese tourists in South Korea can pay back to Alipay’s account after using T-money for foreigners if they have any remaining credits. T-money is available not only transportation including metro, bus and taxi but also for payments at convenience stores and other selected shops. Also, T-money has introduced a new service for domestic users, providing compensation system for Mobile T-money when a user loses a phone, providing a safer environment for T-money users.

For Hana Bank, they haven’t started a service with Alipay but it will be launched soon. After launching a new service with Alipay, Chinese tourists will be able to pay with Alipay at merchants of Hana Bank. In other words, they can use Alipay in broader places like orthopaedics, nail salon and hair salon than what T-money service offers.

The similar case has been seen in South Korea and Japan. Cashbee, South Korea’s mobile payment card partnered with Japan’s three major MNOs, NTT DoCoMo, KDDI and Softbank. Japanese tourists can now pay with their smartphone in South Korea after installing a dedicated application.

A wave of Fintech has come to Korea. The country is attempting a different approach with the use of Fintech. Some players already recognized their current approach is not acceptable anymore hence it is the time to shift their strategy for future growth.

Payments area has been getting global and more attractive for users. For example, Alipay gives 4.5% interest when a user deposits money. Yes, it’s attractive. However, players should evaluate what is important for their future growth without tapping into the current trend. Establishing an initiative for business growth should be the overriding concern now amid mounting attention to Fintech.

Start-up of internet-only banks in South Korea

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Feb 25th, 2015

South Korea’s government has begun to move to permit internet-only banks. It is in discussion with a group of financial institutions, vendors and other institutions, and the outline for internet-only banking services will be set up around April.

In South Korea, most banks, we can say all banks, already offer direct banking including internet, mobile and smartphone, and many customers are accustomed to them. However, dedicated internet banks have not been allowed to date due to regulatory and other issues.

Currently, there are two main challenges to setting up an internet-only bank in South Korea.

1. Identity confirmation through direct channel: the current law requires customers to open a new bank account at a face-to-face channel with their ID. So people visit a bank branch at least once to start banking transactions, although direct banking services are at a quite mature level in South Korea. The requirement for identity confirmation should be revised accordingly when permission is granted for dedicated internet banking.

2. Relaxation of the Separation of Banking and Commerce: in the current law, institutions belonging to the commerce sector cannot provide banking services, and their ownership share in a bank is stringently limited at 4%, compared to 25% in US and 20% in Japan. To encourage the entry of various kinds of sectors into the internet-only banking market, the relaxation of this law is one of the important issues.

Currently, a number of institutions including banks, vendors and other sectors are negative on entering the market and will keep a wait-and-see attitude for now. Before entering the market, they should learn from case studies of overseas internet–only banks. To cite a case, there are many good examples of online account opening using the advanced facial recognition tools.

I will appear at a conference on internet-only banking in Seoul on March 10, and will present case studies and learnings from the Japanese market. Anyone interested in the event details, please visit http://fintechkorea.com/.

サムスンのスマホ決済ベンチャー買収について

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Feb 24th, 2015

先週、サムスンがスマートフォン決済ソリューションベンダーであるループペイを買収したとの報道があった。今回の買収は今後のサムスン製スマートフォンの更なる飛躍を意味するものになるのかが注目されている。

ループペイの技術の長所は汎用性であり、既存の磁気式カードリーダーにスマートフォンをかざすことで決済が遂行される。既存のスマホ決済は専用端末機を要するケースが多く、アップルペイも然りだ。

しかし、サムスンが今回導入したスマホ決済技術は専用端末機の導入は必要としない。加盟店は端末機のための追加コストがかからないため、導入に積極的な姿勢を見せるだろう。既存のスマホ決済にはなかった、汎用性・互換性を備えているループペイ社の技術は今後、サムスン製スマホの更なる成長を牽引する要因のひとつになるだろう。

Samsung’s acquisition of smartphone payment solution vendor LoopPay

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Feb 24th, 2015

Last week, Samsung announced the acquisition of LoopPay, a US-based smartphone payment solution vendor. It has been receiving attention as it may be poised to bring further growth to Samsung’s smartphone.

The strength of LoopPay technology is broad versatility. Its technology enables smartphone payment at a touch to a magnetic card reader. Most existing smartphone payment services require the implementation of a dedicated payment terminal, and ApplePay is not an exception. However, dedicated terminals will now not be required with Samsung’s smartphone payment technology.

The fact that a merchant will not incur additional cost for a payment terminal makes this smartphone payment service more attractive. The LoopPay technology with its versatility and compatibility should become one of the future growth drivers for Samsung smartphone.