Season 1 - Fintech in Asia: The Slow Introduction of Open Banking and APIs in Japan

In this episode, we continued our ongoing series on fintech in Asia with Toshio Taki, the co-founder of Money Forward, a Japanese fintech firm that provides financial management tools for individuals and small businesses. In addition to his role at Money Forward, Toshio also serves as a director of the Japan Association for Financial APIs, promoting the use of open APIs (application programming interface) in Japan. 

Toshio talked us through the open banking and API landscape in Japan, highlighting where recent changes in regulation are encouraging further development, and comparing Japan to global peers in this area. Through his work both at Money Forward and with the Association, Toshio is pushing for greater adoption and integration of financial technology services among Japanese clients, and looking in particular to help draw Japan’s economy away from its heavily cash-reliant systems. 

Roughly 80 percent of all consumption in Japan is cash-based, placing Japan as a distinct outlier relative to other developed economies. One of the key factors for Japan’s high dependence on cash is the lack of a dominant electronic payment network that is universally accepted in Japan. Compared to China’s Alipay and WeChat Pay, for example, Japanese providers are fragmented and lack merchant integration. Japan’s Banking Act was amended in June 2018 to promote open banking. However, the regulation lacks clarity on data portability, and implementation of open banking components among Japanese companies remains voluntary. Nonetheless, roughly 130 chartered banks in Japan among the largest 140 have plans to open up APIs by mid-2020. In its early stages, there are already around 20 Japanese companies using open APIs to provide account information services. Personal finance and corporate accounting services are expected to be significant beneficiaries of open API. Other opportunity sectors will likely include peer-to-peer payment platforms and the development of personal electronic money accounts. Standardizing bank practices and data formatting across different countries remains a challenge. In part, this reflects the local nature of API development and lack of cross-border services driving international collaboration. This multiplicity is evident even in Japan by itself, where a handful of system vendors have created multiple standards around API infrastructure. Rather than rushing to standardize, however, now may be the optimal time to let early movers experiment and learn what works well and what doesn’t. Fintech development in Japan is happening quite differently from the way it is evolving in the United States. The U.S. model is based on small disruptors creating a very successful user experience and using this base to alter specific banking functions. In Japan, by contrast, fintech development is occurring in partnership with the larger, more traditional providers. In part, this reflects the difference in Japan’s credit landscape, where households are generally happy with current banking services and SMEs have not faced credit constraints the same way U.S. businesses have post-crisis. Looking forward, financial services and the banking sector writ large are expected to face major upheavals. For Japanese banks, the transition away from cash will transform the way they attract customers, shifting the major attraction of local banks from their ATM proximity to how exciting their apps are and their exclusive product offers. In addition, a new credit cycle in Japan could usher in novel credit channels – similar to the way peer-to-peer lending was catapulted forward in the U.S. post-crisis to fill the gap left by traditional credit providers.

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.