Top

Published in:

2021 | OriginalPaper | Chapter

5. The Impact of Fintech on Existing Financial Institutions

Author : Kazuhiko Tajimi

Published in: The Economics of Fintech

Publisher: Springer Singapore

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

Fintech is a colloquial term created by joining together the words “finance” and “technology.”

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

previous chapter Consumer Behavior and Financial Marketing

next chapter Fintech Entrepreneurship

It used to be written FinTech, but has recently become widely established as “fintech.”

This is in the process of being replaced by read APIs (Application Programming Interfaces) offered by banks, which will be discussed in detail later.

A unicorn is a startup valued at over JPY 100 billion, which far exceeds the scale of a small or medium-sized enterprise.

In Japan, they are sometimes called SIers, although this is not standard in English-speaking parts of the world.

It must be mentioned that this is special to Japan. Financial institutions in Japan have tended to outsource system development. In most U.S. and European financial institutions, the system infrastructure may be supplied by external organizations, but customization of the system is done by in-house systems engineers. Japanese banks do have in-house IT staff, but there is a big difference between IT staff and systems engineers capable of systems development.

The use of data from security cameras for non-security purposes violates the Personal Information Protection Law, so companies are required to explain their motives to and get consent from customers in advance.

According to Cisco (2017), the global IP traffic run rate was 1.2 ZB per year (i.e., 96 EB per month).

Computational performance is measured by floating point operations per second (FLOPS), and the Deep Blue was able to achieve 11.38 GFLOPS, but the iPhone 6, which comes with an Apple A8 chip, can achieve 115.2 GFLOPs. According to the well-known Moore’s Law, the number of transistors on an integrated circuit (IC) chip doubles every 18 months. Given that an IC chip’s sophistication increases with the number of transistors, it is natural that computing power should also increase exponentially. Some point out, however, that the pace of increase in the number of transistors on an IC chip is falling short of Moore’s Law.

The synapses of the human brain are connected on many layers, and deep learning is what happens when these connections span numerous layers, i.e., go deep down. Neural networks are algorithms that have a vast scope. Countless algorithms have been derived from neural networks for various purposes.

In 2012, University of Toronto Professor Geoffrey Hinton achieved a superior error rate of around 17% for deep learning compared with the much larger error rate of 26% for other methods, winning the ImageNet Large Scale Visual Recognition Challenge (LSVRC). As of 2016, the error rate has dropped below 5% and deep learning algorithms have become mainstream.

When it comes to perceiving things clearly, the human field of vision is 2° or so. Taking into account the processing ability of the brain, this is the equivalent of 7 megapixels in terms of computer resolution.

Gartner, an IT-related research and advisory firm, publishes a graphical presentation of the cycle of emerging technologies for the reference of companies considering IT investments. The graph divides the cycle into five phases, namely, Technology Trigger, Peak of Inflated Expectations, Trough of Disillusionment, Slope of Enlightenment, and Plateau of Productivity.

The study mentions a variety of occupations including sports officials and hotel desk clerks, but only finance-related examples have been cited here in the context of fintech.

Mizuho Financial Group, Inc, has announced plans to cut 19 K jobs, while the Mitsubishi UFJ Financial Group, Inc. and Sumitomo Mitsui Financial Group, Inc. have announced plans to cut 9.5 K and 4 K jobs, respectively. Apart from this, plans to consolidate and reorganize bank branches have also been announced.

Also called Generation Y, the Millennials are people who were born between 1980 and 1990, but some definitions include people born between the mid-1970s and mid-1990s.

Members of Generation Z, which is the generation after Generation Y.

Viacom Scratch (2013).

To prevent another financial crisis, various regulatory frameworks have been agreed on or brought into effect since the collapse of Lehman Brothers, including Basel III, a regulatory framework on bank capital adequacy (September 2010), an increase in capital requirements of global systemically important banks’ (G-SIBs; November 2011), and the Volcker Rule, which regulates the investment activities of U.S. banks (July 2010).

Though not a fintech company, e-commerce company Amazon has begun its own credit business, Amazon Lending, using sales information as a criterion for assessing creditworthiness. The Japanese e-commerce company Rakuten has started providing a similar service of its own. If a company does all of its business through e-commerce, companies like Amazon or Rakuten are in a better position than traditional financial institutions to understand its performance.

Permission is given on condition that said permission will or is likely to contribute to an improvement of the services offered by the bank or bank holding company.

The negative phrasing notwithstanding, this is a major relaxation of the rules for banks. Other regulations, apart from matters related to investment in IT firms, were also simultaneously relaxed, such as the uniform 50% rule for income dependence related to associated businesses, which means that at least 50% of the income of a subsidiary company must come from the parent company.

In Japan, this business is conducted by AMAZON CAPITAL SERVICE LIMITED LIABILITY CO.

Despite this advantage, companies are not allowed to use customers’ personal information for any purpose not authorized by the customer. Information that is not classified as personal information falls outside the scope of the Personal Information Protection Law, but moves to expand the usage scope of such information are proceeding cautiously and can only be implemented after obtaining customers’ understanding and consent.

In November 2018, LINE and Mizuho Bank announced their intent to set up the LINE Bank. From Mizuho Bank’s perspective, this was a step aimed at benefitting from LINE’s customer contact points.

These fintech companies are called electronic payment agents.

To quote Tsukuba University Associate Professor Yoichi Ochiai, “Telling ourselves that there is nothing impressive about the technology is a recipe for perennial defeat. (…) I want to emphasize “low cost” and “clever”.” (The Securities Analysts Association of Japan [2018], our translation.).

If a new service does not have potential, finding out sooner rather than later helps the company cut its losses and get out while the damage is still small. This is an ideal approach for startups, which cannot afford to make enormous investments.

This is called the “pitcher-catcher problem.” Employees dispatched to Silicon Valley are “pitchers,” the information they send back to Japan is the “ball,” and the people responsible for interpreting this information back in Japan are “catchers.” The problem is that the catchers are incapable of catching the ball (interpreting the information) without an understanding of what is happening in Silicon Valley.

To avoid financial crises, financial institutions have become required to comply with numerous regulations in conducting their business. Consequently, rigorous regulatory compliance has now become a core part of financial institutions’ culture, which is very different from the culture of fintech companies, which accept risk-taking as a natural part of doing business.

METI has established a website for digital transformation called METIDX: http://www.meti.go.jp/policy/digital_transformation/index.html.

Geoffrey Moore.

Cisco (2017) The Zettabyte era trends and analysis. Cisco (PDF)

Viacom Scratch (2013) Millennial disruption index. Viacom Media Network

Title: The Impact of Fintech on Existing Financial Institutions
Author: Kazuhiko Tajimi
Publisher: Springer Singapore
Book: The Economics of Fintech
Print ISBN: 978-981-334-912-4

Electronic ISBN: 978-981-334-913-1

Copyright Year: 2021
DOI: https://doi.org/10.1007/978-981-33-4913-1_5