Fintech is a coined word that combines “Finance” and “Technology” and refers to new financial services that utilize the latest technologies such as AI and blockchain .
Fintech is used in a wide variety of ways, including streamlining accounting operations and optimizing financial management, as well as cryptocurrencies and payments, which have been a hot topic in recent years, and simulations of personal asset management. It is also attracting attention as an important factor in promoting DX (digital transformation) , which will transform various businesses other than financial institutions and our lives .
In this article, we will explain the meaning of the word FinTech, market size, classification of services by chaos map, the latest technology that supports FinTech, and future challenges.
What is FinTech? Revise the meaning of words
Let’s review the meaning of the word fintech and its history so far
In recent years, the word “fintech” has become a common word, but there are surprisingly many people who do not know the meaning of the word or how it was born. Let’s review the basic knowledge of fintech here.
Meaning and History of FinTech
Fintech is a coined word combining “Finance” and “Technology”. This is an initiative that combines financial services and technology to improve the efficiency of accounting operations and improve the value of customer experience .
The beginning of FinTech dates back to the 1860s, when electronic fund transfers (remittances and settlements using networks) using submarine cables. Credit cards appeared in the 1950s, ATMs appeared in the 1960s, and online banking started around the world in the 1980s. The operations of financial institutions and transactions with customers have also gradually been digitized.
The 2008 “ Lehman Shock ” determined the rise of FinTech . The bankruptcy of Lehman Brothers, a major American securities firm, triggered the global financial crisis.
As a result, distrust of banks increased, and excellent human resources from the financial industry flowed into the IT industry. New financial services utilizing AI (artificial intelligence) and blockchain have emerged one after another to solve the problems of the financial industry and consumers. It is said that more than 100 fintech-related venture companies were born during this period.
FinTech market size
According to the Market Data Forecast report, the global fintech market in 2025 will be worth $108.38 billion (approximately ¥12 trillion). It is expected to grow to 305.05 billion dollars (about 32 trillion yen) in 2025.
Services in the “payment/remittance” category account for the majority of the market. In particular, the Asian region has made remarkable progress, and in June 2019, the number of users of the Chinese payment service “Alipay” exceeded 1.2 billion.
In Japan, after the consumption tax hike was announced in October 2018, the payment app “PayPay” became a hot topic with a 10 billion yen return campaign. After the tax hike, the usage rate of QR code payment increased due to the impact of the government-led “cashless point return business”. As of June 2020, the number of registered users of “PayPay”, which boasts the largest number of member stores, has reached 30 million.
According to a report by Yano Research Institute, the FinTech market in Japan as of 2018 was worth 214.5 billion yen. It is predicted to expand to 1,210.2 billion yen in fiscal 2022 .
Background of expansion of FinTech
The expansion of fintech is based on advances in information and communication technology (ICT) .
In 2001, the commercial service of the 3rd generation mobile communication system “3G”, which realized a high-speed network, started. In the late 2000s, smartphones became popular, giving users easy access to financial services.
In 2008, the Lehman Shock occurred. Consumers questioned the centralized system of financial institutions due to distrust of investment banks and securities companies that had made huge profits until then, fear of economic recession, and dissatisfaction with not being able to receive appropriate financial services. Like holding.
This is where the decentralization of financial services begins.
The virtual currency “Bitcoin”, which was born in 2009, can be said to be a symbol of this. It is a currency that can be traded without going through a financial institution by ensuring the transparency and falsification resistance of transactions by “blockchain” that manages information with multiple computers.
What has determined the prosperity of such financial services is the rise of the millennial generation, who spent their childhood and adolescence during a period of economic instability .
Millennials, who are familiar with on-sign services including Internet banking, now make up about 20% of the world’s population. In 2020, we will be 24 to 39 years old, and it is time to start considering mortgages and asset management. The creation of new services that meet their needs can be said to be a major issue when considering the growth of the financial industry.
FinTech Chaos Map and Classification
In May 2019, FinTech and virtual currency information media “MAStand” released a chaos map of FinTech-related services. Based on this, we will introduce definitions of each category and representative services.
FinTech category 1: Virtual currency
Virtual currency is a currency that is exchanged electronically rather than in physical form such as banknotes and coins. This category includes virtual currency exchanges such as “Coincheck”, “GMO Coin” and “DMM Bitcoin”, as well as services such as “COIN NINJA”, a search engine for virtual currency and blockchain technology.
In April 2019, the virtual currency exchange “Liquid by Quoine” became Japan’s first unicorn company in the Fintech industry. Expectations are high for the Japanese company to lead the cryptocurrency market in the future.
FinTech Category 2: Insurance
Fintech in the insurance field is called “InsurTech”, which is a combination of Insurance and Technology. This is a field where new services such as business efficiency improvement and health promotion insurance using AI (artificial intelligence) are expected.
The venture company “justInCase” has become a hot topic for “Warikan Insurance,” which calculates monthly insurance premiums based on the number of policyholders who have cancer. This is a new style of insurance in which the usage and breakdown of insurance claims are made open and the policyholders share the risks.
FinTech Category 3: Settlement Pay/Remittance
Pay service that allows smartphone payments using QR codes and barcodes, and remittances between app users free of charge. Triggered by the cashless point return business due to the consumption tax increase, the number of users has increased rapidly in Japan.
Apple Pay is said to account for 10% of all credit card transactions worldwide by 2025. The high convenience of being able to collectively manage your credit cards and electronic money with the app is attractive.
According to a market survey by ICT Research Institute, the domestic smartphone payment market is expected to expand to approximately 3 trillion yen in fiscal 2020.
FinTech Category ④: Security
IT system security is an important issue in financial services. This category includes companies that provide cyberattacks, countermeasures against unauthorized logins, and biometric authentication technology.
The venture company “Liquid” has developed an identity verification service “LIQUID eKYC” using face recognition. This service maintains a high level of security through highly accurate image matching and image processing technology, and is currently being used by multiple financial institutions.
FinTech Category ⑤: Financing/Loans
The wave of FinTech is also surging into loans and lending, which can be said to be the representative business of financial institutions.
“Moge Check”, which is also included in real estate tech, is an online one-stop service for mortgages. Various services can be used according to the consumer’s phase, such as determining the amount that can be borrowed, proposing the optimal housing loan, and acting on behalf of the refinancing procedure.
FinTech Category 6: Personal Asset Management
In terms of personal asset management, “AI investment” is becoming active.
Services such as “WealthNavi,” “THEO,” and “folio” present asset management portfolios and risks through robot advisors equipped with AI. Since it is possible to automate the operation and arrange it according to the purpose, it is easy for beginners to start asset management.
FinTech Category 7: Crowdfunding
Crowdfunding is a mechanism to collect funds mainly from individuals online to achieve business. There are a wide variety of purposes, such as product development, social activity support, and real estate management, and they are classified into four types: purchase type, donation type, loan type, and investment type.
In October 2019, Japan’s largest crowdfunding platform “CAMPFIRE” surpassed 15 billion yen in total circulation. Based on the current growth rate, we also announced a forecast that it will reach 30 billion yen by the end of 2020.
FinTech Category ⑧: Social Lending
Social lending refers to loan-type crowdfunding, an online service that mediates the lending and borrowing of money between individuals.
In the United States, Lending Club, which operates a social lending platform, announced in February 2020 that it would become the first fintech company to acquire a bank. We aim to provide flexible financial services with lower loan fees, effective cash flow management methods, and more.
FinTech Category ⑨: Accounting/Finance
This category includes services that support accounting and accounting operations for both corporations and individuals.
“freee”, which develops cloud accounting software, not only automates transaction information such as invoices that had to be entered manually, but also supports upstream processes such as deposit management and cash flow. The number of paying paying users exceeds 160,000.
FinTech Category 10: PFM (Personal Financial Management)
PFM stands for “Personal Financial Management” and mainly refers to personal financial management services such as household account book apps.
Online household account book service “Zaim” is a service that automatically collects financial information in conjunction with bank accounts and credit cards and creates a household account book. It also has a convenient function that tells you which benefits you can receive based on information such as your living area and household composition, and notifies you of campaign information for frequently used stores.
FinTech Category 11: Financial Information
This category includes platforms that post economic information, price indices, consumption trends, etc.
The economic information platform “SPEEDA” supports information collection and analysis from 3,000 industry reports, 8 million company information, and 2,000 media news. It can be useful for speeding up competitor research, listing target companies, and catching up on market trends.
Five latest technologies that support FinTech
The latest technologies such as blockchain, AI, and API are indispensable for FinTech
In addition to the above-mentioned blockchain, fintech uses various latest technologies such as AI and IoT. From here, we will explain how it works and how it is used.
Blockchain: cost reduction, stable operation
Blockchain is a mechanism in which terminals on the network share data in an equal relationship and maintain the system without the intervention of a central administrator .
The conventional system is called a “client-server system”, and a central server manages the entire system collectively. Blockchain systems, on the other hand, are called “P2P networks,” and terminals can directly send and receive information between them.
The main advantages of P2P networks are cost reduction and stable operation.
Client-server systems incur costs for server installation, operation, and security measures, but P2P networks manage data between terminals, making it possible to significantly reduce costs. In addition, unlike client-server systems, which can lead to information leaks and system failures due to problems with the central server, P2P networks enable stable operation between normally operating terminals.
IoT: big data collection
IoT is an abbreviation for “Internet of Things”. It refers to a system in which not only devices such as computers and smartphones, but also various things around us such as automobiles, medical equipment, and electrical appliances are connected to the Internet.
As IoT spreads, it will become easier to generate a wide variety of big data.
Until now, big data consisted of website data such as e-commerce site purchase history, operational data such as corporate sales management, and social media data such as SNS user profiles and comments. However, these methods are not sufficient in terms of data volume, real-time performance, and diversity, and have problems with data accuracy.
When things around us are connected to the Internet through IoT, a vast amount of diverse data will be accumulated in real time. As the number of data items increases, the accuracy of predictions increases, leading to improvements in customer experience and the creation of new services.
In Fintech, not only do we provide accurate support for personal asset management and financial management, but also in life insurance, risk is measured from the policyholder’s exercise habits and dietary habits, and in automobile insurance, risk is measured from driving skills and vehicle conditions, and insurance premiums are discounted. are also being implemented. Big data collected by IoT is indispensable for the realization of such services.
AI: Big data analysis and management
AI (artificial intelligence) is a technology that enables computers to perform the abilities of humans such as recognition and reasoning .
In the financial industry, data such as corporate financial data, stock prices, newspaper articles, and analyst reports have been used to predict market transactions, design strategies, and make loan decisions. However, with the spread of IoT, the amount and types of data have increased, and it has reached a state where it cannot be processed by human ability alone.
AI is useful for analyzing and managing such big data. With the development of machine learning and deep learning, it is also possible to analyze and process large amounts of data that humans could not handle, and to find regularities that humans could not discover.
In the fintech industry, it is being used in robo-advisors that can provide personalized advice on investment, asset management, and insurance plans, as well as chatbots that respond to customer needs and customer service signage.
API: Improved user convenience
API is an abbreviation of “Application Programming Interface”, and it is a mechanism that creates contact points between application software on a computer or on the web and external applications . For example, a function that allows you to log in to non-Google apps using your Google account is an API link.
Linking apps via API eliminates the hassle of creating a new account and improves UX. For companies, it is easier to acquire users, and at the same time, it has the advantage of reducing the cost of managing and protecting authentication information.
This technology is also attracting attention in fintech. The “Fintech Common API” provided by IBM is an API platform that connects existing Internet banking and Fintech services and allows you to inquire about balances, deposit/withdrawal details, and account information. The fintech company “Money Forward” utilizes such APIs to develop new services in collaboration with its own household account book app.
Biometrics: security measures
Biometric authentication is an authentication technology that verifies a person’s identity based on physical characteristics such as fingerprints and veins . It is more secure than conventional PINs and passwords, and is highly effective in preventing personal information leakage and skimming.
Currently, biometric authentication is used in various fields. In China, where the payment payment system spread quickly, facial recognition is now used to enter events, pay utility bills, and use retinal recognition to verify identity when signing a mortgage.
The Japan Association for Automatic Identification Systems predicts that the global market for biometric authentication, which was about 10 trillion yen in 2016, will expand to 50 trillion yen in 2026.
Issues and Future of FinTech
The key to the growth of the financial industry is the introduction of fintech
The financial industry is in the midst of innovation, with new services being born one after another due to the development of technology. Let’s organize the current issues and future trends.
Improving the legal environment
Since the mid-2010s, various laws have been enacted in Japan along with the rise of FinTech.
In 2016, the “Law for Partial Revision of the Banking Act, etc. to Respond to Environmental Changes such as Advances in Information and Communication Technology” was enacted, incorporating systems related to technological innovation and virtual currency. Subsequently, in 2017, the “Law for Partial Revision of the Banking Act, etc.” was enacted, stipulating the establishment of an open API system to promote collaboration between financial institutions and Fintech companies.
In 2019, the “Law for Partial Revision of the Payment Services Act to Respond to the Diversification of Financial Transactions Accompanying the Advancement of Information and Communication Technology” was enacted. Virtual currency was renamed to “crypto assets”, and a system was developed to protect users of crypto assets and clarify rules.
However, the legal system for fintech is still inadequate . Going forward, we will revise the law to subdivide the fund transfer industry that provides remittance services, promote financial services across banks, securities, life insurance, and non-life insurance, spread the prepaid card “Payroll Card” for salary payments, and digital currency It is thought that legislation regarding salary payment in Japan will progress.
Promoting innovation in financial institutions
Providing new financial services requires trial and error of technology and business strategies. However, some financial institutions are reluctant to cooperate with FinTech companies due to concerns about safety such as security .
In fact, the amended Banking Act enacted in 2017 obliged financial institutions, mainly banks, to make efforts to implement open APIs. is 67.1% . Japanese financial institutions, which already have high reliability and advanced financial services, are concerned about the leakage of personal information due to API linkage and question the cost effectiveness of system renovation.
But according to Accenture’s survey of global financial institutions, fintech delays will cost them $88 billion in lost revenue over the next three years. In the future, it will be inevitable for financial institutions to promote innovation through the introduction of fintech .
To that end, it is necessary to select a growth strategy that balances reliability, convenience, and cost, and secure human resources who are well versed in finance and IT.
Initiatives for vertical fintech
With the spread of FinTech, what is required of financial services is changing day by day. In the future, it is thought that not only highly versatile banking operations such as deposits, loans, and exchanges, but also services that are specialized for the challenges of each industry and domain will be required.
For example, industry-specific AI chatbots, robo-advisors for personal asset management with investment trading tools and donation functions, and platforms specializing in medical payments that realize patient engagement and reasonable medical costs. To do.
Such highly specialized fintech is called “ vertical fintech ” and will lead the growth of the financial industry in the future. Companies need to carefully research the insights of their target customers and lead them to problem solving through effective UX design.
Fintech Development Case
Here, we introduce a development example of FinTech-related services from Monstar Lab.
Cashless payment service “Pay Don” / Kagoshima Bank
“Pay Don” is a cashless payment service that can be used by customers who have an account with Kagoshima Bank. We started with 14 stores in the completely cashless commercial facility “Yokado Kagoshima”, which opened in June 2019, and are gradually expanding the service.
Monster Lab supports design, implementation, testing, and release. In addition, through the project, we gave lectures on the knowledge of mobile applications to the developers in Kagoshima Bank, contributing to the creation of an environment where the bank can develop additional functions.
Foreign remittance acceptance workflow “SurFIN” / Nihon Unisys
“SurFIN” is a workflow solution for branch offices that digitizes the entire process from reception to external payments in international remittances at financial institutions, improving usability for customers and operational efficiency for financial institutions.
Monster Lab is in charge of research, planning and design. Changing the remittance request form to tablet input reduced human error and contributed to the improvement of operations such as remittance procedures and input information management.
