Last week's FinTech Summit in Tokyo Sept 19-22 was very ambitious in scale and breadth. Absorb my Executive Summary wrap up notes of 52 key points below. A wide number of startups, speakers and innovation were found both from domestic and international startups. There were many different sessions over the 4 days in multiple locations. These are only the top 52 highlight points. Many more were discussed and shared by many in the panels. They may take a while to read, but are really worthwhile to learn about. It will prepare you for what is already on the way within FinTech.
*1) Bitcoin, Ethereum, Litecoin and Ripple all seem to be at the forefront of cryptocurrency trading. The new coins are not the true innovation though. The real game changer is that they are all based on the Blockchain architecture.
*2) It should be noted that the Blockchain is a great concept, but it was Bitcoin via code from Satoshi Sakamoto who made it mainstream in 2009. Before then, there was no "Killer App" to prove the value of the Blockchain. Many more coins have since emerged, many even better in function.
*3) Ethereum differs from Bitcoin as it is a wider platform than just a coin or storage of value. Bitcoin has had trouble with exchanges, which have sometimes been hacked. That is the current risk for traders today.
*4) There is a big push to cut out the middle man with FinTech. Instead of using a bank or any other third party to distribute a service, new products can now go direct to users via smartphones. Music no longer needs big labels, and soon, FinTech services may no longer need banks, like they do today.
*5) FinTech in phase 1 can best be seen as a way for outsiders to improve the price or value for banking services. In phase 2, working with the banks directly from the inside, and getting access to their customer data, will be the "holy grail" for more innovative services.
*6) One of the best ways to use customer data will be by using AI or artificial intelligence to figure out what the big data can actually reveal. Cleaning the data, is a big challenge. Many feel that 90% of the effort with AI, is just "cleaning the data" so it can better be used by any algo. This may only be 10% of the effort.
*7) Alibaba founder Jack Ma also uses a term TechFin not just FinTech. When a tech company changes its software and then targets banks or other financial services, that is TechFin. It describes a Technology company that now focuses on serving Financial clients with new services.
*8) Are there common themes in FinTech? is it just Hope, Hype or Horror? Or can new services often be seen as being Small, Fast and Agile when meeting customer needs?
*9) A big driver of AI and other FinTech innovation is around cost. Back in 1981, one gigabyte would cost USD300,000 to store, but today in 2017 the cost is only 10 cents! This price reduction opens up many new ideas that before could not be afforded previously.
*10) Similar human genome project costs have come down. Back in 2001, a USD100M cost is now as low as just 3 cents today, just 16 years later!
*11) Japan will soon revise its banking law in 2018. If this happens, how many new AI uses will suddenly be allowed with the FSA or BOJ? Many new startups may be created from new business chances in the space.
*12) AI will impact jobs. Foxconn makes Apple iPhones in Chinese factories. Recently, they automated a single large factory with AI robots. This one change cut more than 60,000 staff jobs that used to run 3 shifts 24 hours a day.*13) This year in July 2017, a human surgery that would usually take 3.5 hours by a doctor, took just 2.5 minutes by one AI Robot.
*14) The insurance area may have the biggest impact with job costs. The human capital needed from actuaries and underwriters be soon be more automated. Some 70% of these jobs today may disappear due to AI within 5-10 years.
*15) One medical AI firm in Israel can now detect cancer in users very early, stage 1 via a simple "voice change AI engine". This early stage often has a 98% recovery rate.
*16) HFT or quant driven High Frequency Trading is finding the limit of speed due to the limits of light. This speed revolution in financial trading may be in sunset mode today, but AI may restart this area and give it a new dawn tomorrow!
*17) Are there themes in investing in Japan that differ from London or San Francisco? Yes. In Japan, VC is not only concerned with returns and profits, The extra added feature is synergy by investors. Other VC centers have more hands off or silent investment partners.
* 18) Japan seems to have more collaborative synergy with investment partners. A classic 1+1=3 type strategy where plus alpha can grow, not just investment profits.
*19) Can Bitcoin be made easy for purchasing? Yes, FinTech firm Wirex in the UK work with Visa card for Bitcoin based purchases. It has 800,000 users in 130 countries. You purchase with Visa and bills are paid in Bitcoin. Visa's global network now has 40 million merchants in 200 countries.
*20) China's Alipay had a 77% share in 2013, while TenCent had 9.6%. New services can change market share dramatically. Both now have similar shares in 2017. Wechat users now top 963 million users while QQ have 864 million users.
*21) The goal of the Chinese payment system is not to be profitable per transaction, but to penetrate and add convenience to users. Lending and Investments can also be done with the service, and this feature can bring great profits.
*22) The culture of Red Packets to give gifts of money on new year's was a major event. By moving this online, mobile phone red packets went from RMB20 million in 2014 to over RMB14 Billion on a single in 2017! Tremendous growth.
*23) Yellow Packets have followed where people can send fractions of gold, backed by ICBC. With enough Yellow Packets in value, you can then buy actual real gold coins or bullion.
*24) More holidays and occasions are now being used for Red or Yellow Packet uses. Temples can even be given these packets for luck. Have an important interview tomorrow? Why not send a temple donation today to ensure your good luck!
*25) FinTech needs innovative ideas from innovative people. Sompo in Japan has moved into FinTech but only by hiring outsiders. Few internal transfers would work to bring in radical new ideas. As a result, 70% of all hires come from outside the firm. In fact, the CIO, COO & CMO are all from outside of Sompo.
*26) FinTech is successful when it fills a clear gap in trust or under service. Many brands like WeChat in China, Uber in the USA and many others are good examples. This concept will continue as new regulatory changes will open up those new FinTech opportunities.
*27) FinTech in Indonesia is now widespread. The country has 259 million people, but has 326 million mobile users. Over 160+ FinTech companies operate today, 41% for payments, 30% for lending, 11% for investments, and 3% for insurance. Many new areas are expanding.
*28) RegTech and InsurTech are new ways for more efficiency with slow documentation procedures. Paper based will be soon digitized.
*29) The average Trade Finance deal, like a shipment of steel between Europe & China could have a stake of paper documents that is 15-18cm thick in total.
*30) Only 5% of trade finance documents are currently digitized. Once this system can be converted, many fewer paperwork support workers would be needed in operations. Fewer support staff can make the deal pricing that much more competitive.
*31) VC interest in FinTech is poorly balanced. The global market for financial services is USD1Trillion in value, yet VC funding is only dedicating 2% of total funds to FinTech. this will need to change.
*32) One big picture though missing from the FinTech innovation is retraining. If new automated systems can replace engineers and other legacy programmers, there may be delays from the staff themselves.
*33) If a programmer creating automation has no path to retrain within a company, any programming work may be designed have bugs that need more work extending employment. HR needs to help the retraining process or the implementation of new FinTech systems may be delayed in execution.
*34) Traditional banks are leaving businesses in many markets with low profitability. This is leaving old markets with few competitors who could be replaced by new FinTech services. They would need to be more efficient, often needing less or no potential regulation compared to legacy banks.
*35) The average 40 year old worker in Japan today can expect a future pension at age 65 that is 30% less than what baby boomers get today. It may even be worse with a later starting age.
*36) Japan counts 1800 Trillion Yen as the total estimated savings from deposits and personal assets held today.
*37) The US counts 8700 Trillion Yen as the total estimated, over 4+ times more than Japan with 1/3 the population.
*38) Why is there a gap today? Many Japanese do NOT invest in risk assets, they save in term deposits, and do not spend.
*39) US citizens donate 130,000+ Yen per year, but Japanese citizens only donate 2,500 Yen. Only 1/3 make donations.
*40) Why is this the case? Mainly from fiscal trauma as direct result of 2 decades of deflation after the Japanese bubble.
*41) A similar example was found in the US, during the great depression and war years from 1929-1949. By 1950, spending returned and boomed in the 1960s and beyond.
*42) There is a current negative defeatist mentality found with many Japanese. They work hard, but then get fired, they study English, but fail to make progress. They try and diet, but do not lose weight, they invest but with poor returns.
*43) All of this is a cycle, and within 20 years, a rebound can be expected, but FinTech may partly accelerate this rebound.
*44) Many Japanese feel that they do not have enough savings to be taken seriously by the financial industry. The minimum lump sum is not even known. They save without a clear goal. Many Japanese banks start calling customers once 10 Million Yen is on deposit. That seems to be a typical starting point.
*45) Many Japanese feel that without a large lump sum, they will not get proper attention, but even with small monthly contributions, the paperwork involved is still high. FinTech needs to help simplify this process now stuck in frustration.
*46) Today many Japanese securities firms still "push" financial products on customers based on commissions to the seller. They are not matched to the buyers needs using big data yet.
*47) There is a income gap even in Japan, and the top 20% of High Net Worth Individuals are the prime service target.
*48) Ordinary Japanese citizens feel that there is no attractive product offering for the remaining 80% of the population.
*49) Yes, senior baby boomers are sitting on large financial assets, but 30% of this senior population passes away every 10 years. Sadly, after inheritance is done, the children often just save any cash in term deposit savings, not investments.
*50) FinTech is needed to find customised product offerings that really meet new customer needs. New biometric tools on mobiles may help smooth the process to buy them as well. This process should minimize paperwork in future. The hanko needed today in documentation needs to be ended.
*51) FinTech needs to refocus not on the senior citizens with large lump sums today, but on younger customers in future. The best way to grow loyalty is to appeal early to a customer base. The mobile smart phone may be the perfect chance for a better and more efficient distribution platform in future.
*52) Major Japanese banks offer near zero interest rate returns on today's savings & term deposits. That is hardly close to the definition of proper asset management at all. A new revolution is needed to refocus on a growing wide scale market potential of customers, the population's majority. Not a small high net worth pool coming from only a small minority of the population. This use of Technology can be used in Finance very smoothly. Such is the obvious goal of many of the startups within FinTech today. A real valuable beginning.
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