The financial regulator in Japan, the Financial Services Authority, intends to establish a fintech hub that will provide a framework to enable industry startups to test innovative financial services. The good news for Japan-based fintech startups and enthusiasts was revealed last week by Nikkei which reported that Japan had resolved to establish the hub which among other things will help fintech startups to identify legal and other risks that stand in the way of the growth of the fintech sector.
The intended fintech testing hub will be a precursor to a fintech regulatory sandbox that the Japanese government is planning to launch. The fintech sandbox is expected to be in place as soon as this summer. The tests will cover such areas as blockchain which underpins virtual currencies like ethereum and bitcoin. They will also include areas of potential problems such as money laundering. By establishing a fintech regulatory sandbox, Japan will be joining global fintech leaders such as the United Kingdom, Singapore, and Australia which have already established similar sandboxes.
The financial services authority will be working with banks to ensure the realization of the objects of the fintech testing hub and later the regulatory sandbox. The banks are represented by the Japanese Bankers Association, an association of all the 252 domestic and foreign banks operating in Japan. This association has been playing a key role in the development of the fintech sector in the country. For instance, the association is developing a common blockchain platform to be used in domestic money transfers by all banks operating in Japan. The role of the regulator in the operation of the fintech testing hub will be majorly liaison involving the connection of fintech startups with the banks.
The report reveals that a specific focus of the testing hub will be blockchain technologies, though other financial technologies will also be covered. The tests are expected to take between six months and two years, giving useful insights into the available opportunity for commercialization of fintech services.
The effort towards the commercialization of fintech services comes at a time when the Japanese government ist seriously promoting digital payments in the country. The move is justified as the country needs to catch up with other Asian economies such as China and South Korea which boast up to 50% of their population actively utilising cashless payment technologies. In essence, the Japanese government is playing a catch-up role since its only 19% of its population use digital payments.
The establishment of a fintech testing hub and later a regulatory sandbox are some of the government’s efforts to ensure the adoption of fintech in the country will double to 40% in the next decade. Significantly, retail bitcoins payments are well established in the country. Notably, earlier this year, the parliament recognized bitcoin as a legal method of making payments. At the same time, major retailers are working with fintech startups to develop payment solutions. It is expected that many Japanese stores will be equipped to accept bitcoin.