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  4. The Potential of Fintech

2017 Vol.3
The Potential of Fintech


In recent years, the potential of financial technology, or “fintech,” has been actively discussed. Some observers are very concerned that such technology may erode the revenue of existing banks. However, most fintech services are not markedly different from existing financial services and mainly target individual customers. Corporate transactions are the primary source of existing banks’ revenue, but if they can cooperate with fintech companies, the banks will be able to benefit from even individual customer transactions. However, there are various barriers to the development and spread of fintech. The biggest is that Japan is one of the world’s pre-eminent countries where cash dominates as the main driver of transactions. The blockchain, which is the basic technology of virtual currency transactions, has the potential to cause drastic changes in banking systems. A blockchain is a network open to voluntary participation and is distinctly different from closed networks such as the existing banking settlement system, which does not allow relevant information to be exposed outside the system. Although the blockchain is characterized by low operational costs, a problem is to what extent the credibility of settlements can be guaranteed. Once this credibility is confirmed, however, it is expected that innovative business models for banks will emerge. In addition, some banks have started to utilize cloud services for their systems, which will have significant impacts on banking activities as well. The Japanese Financial Services Agency aims to build an open banking settlement network by introducing a fintech company registration system and by requiring banks to make efforts to open their networks to registered fintech companies. In the coming years, it will become necessary for both the government and the private sector to create a new financial system and structure appropriate for fintech.