There is a saying, “never let a good crisis go to waste”.  Many Japanese financial firms have for number of years known that they have had to dramatically change their business models.  They had to move away from focusing on straightforward retail financial service and find margin elsewhere.  I think COVID-19 is forcing them to accelerate that thinking.  In Japan, opportunities are driven by change in the market, not growth as a whole.  Now it is even more so.  The speed of change is increasing, but the growth isn't happening.

I see a push towards online banking and internet-based wealth or investment opportunities.  That is a broad retail change simply because people aren’t dealing with each other face-to-face anymore.  Rakuten Securities and SBI Securities have seen a surge in account openings during the first quarter.  That shows dramatic shifts of customers from traditional banking.  SBI is pulling together regional and local banks to build something like a home team to allow SBI to get their customers onto its platform for them to invest as part of a product.  It is an example of lateral thinking.  It would not have happened a few years ago.

There are numbers of non-financial firms that emerged and entered the financial service sector with “zero-footprint/internet banks” powered by mobile Fintech platforms, such as East Japan Railway’s “Suica” smart card and contactless cards from mobile phone companies, LINE and retailers like 7-Eleven, etc.

Even the Financial Services Agency has driven innovative approaches.  They are more interested now in regulating functions rather than entire firms.  Therefore, you can build more interesting capabilities into a firm without the regulator being the issue.

Japanese industry generally are large holders of cash.  If you look across the world, the problem that most companies face is that they do not have enough cash to weather COVID-19.  That is far less of an issue in Japan.  The problem is demand.  I think the challenge Japan faces, it has already been trying to do this for the last 5 years or more that the Bank of Japan have been trying to spark inflation by driving demand.  The goal was set originally at 2%, but so far we still have not been able to hit the goal.  Now under COVID-19, it is even harder than it was 5 years ago.  It is a very difficult job to be able to drive demand by just doing more of what they did before.  That links into what the government is giving all of us with residency in Japan JPY 100,000 to try and get us to spend money.  That is a small example of the major problem.

I am hoping that it is kind of a shock therapy.  COVID-19 has caused enough shocks that people accept change more readily.  I hope this is an indicator that many other things will be accepted as OK to change.  That is the best opportunity we have in Japan to make a difference.

How about for financial firms?  What are challenges for them?

It is exactly the same problem with financial services firms as well.  Cash is not an issue, but generating demand and transactions is an issue.  People are just not doing business because, I believe, they are worried about the future economy and trying to find ways to maintain the value of their savings and their pensions.  We have seen that on the way.  There is a much higher interest in financial firms now to be looking at projects and new ideas that can generate more revenue and transactions as fast as they can.  The longer term thinking about major restructuring is kind of calmed down while they focus on ways to quickly generate new products, new demand, and get transactions happening and drive margin for the financial firms.

I see a strong move towards firms investing in asset managers.  Mitsubishi UFJ recently purchased Colonial First State in Australia.  Because they're looking to have a broader array of products available for the investing public.  An asset manager is essentially a factory for investable products.  They build funds and other types of investment products.  If you do not have a broad enough array of offerings for the demand, you need to have access to offshore sources.  Sumitomo Mitsui Asset Management and Daiwa SB Investments have joined together to make Sumitomo Mitsui DS Asset Management (SMDAM).  That is a local consolidation.  And there are international mergers and acquisitions happening in asset manages. 

These are all to try and fulfill the demand which is being generated by the public.  But I do see a lot more demand for our products going to the building of more and more sophisticated retail products.  Asset managers are trying to build a far more sophisticated set of products to deliver through their distribution channels.  It has been driven by more cash coming into the market.

Have you found any change in attitude towards investing?

One of the challenges that firms face here is their investing strategy.  Years ago in Japan, an investing strategy would be “go and buy some Japanese government bonds and sit on them”, which guaranteed return then.  It does not need much of a strategy to follow that.  Those days are gone.  Your average investor in Japan now has to have a pretty sophisticated view of the market.  They have to be able to drive a strategy that not only looks for return but ethical return and green credentials, for example. 

Also there is a lot of work being done around varying ways to use artificial intelligence (AI) to help you build an investing strategy.  Often, universities are involved.  Professors of all kinds are involved in generating AI capabilities to try and predict market movements, to try and link together various aspects of a way a company operates, to help simplify building a strategy and hopefully allow differentiated strategies.

Has Refinitiv started to explore business opportunities with AI in the changing Japanese market?

I tend to look at AI more as machine learning (ML).  It's a computer learning and it's learning on how to match things with each other.  We have a risk screening product called “World Check”.  If you try and open a bank account, the bank will look at you through World Check to see whether they should be opening an account with you.  It might be used by a manufacturing company to check the supply chain.  And some of it comes down to this new fashion for ESG.  You are able to know whether the market place you’re in is ethical.  Or this person I'm dealing with completely follows all the ethical principles and I'm not putting myself or my firm at risk.

Japan is the third largest market for Refinitiv and it is important for us to build new partnership including some start-up companies.  Sansan is particularly an interesting one.  Its original idea was to get rid of the piles of business cards on people's desks.  Rolodex is disappearing in the rest of the planet, but it's still a common thing here in Japan.  Sansan was to try and add value to the data that those cards represent.  You have many layers deep to check on someone.  Are there any potential problems in dealing with any of these individuals?  Any bankruptcy or prosecution record?  Who is the ultimate beneficiary?  That is how you arrive at a good or a bad rating of an entity or individual and gives you a good view of your risk in dealing with that entity or individual.  We have a full database that could help you screen all of those people and tell your customers.  Sansan was very interested in that capability and thought it was trustworthy to offer it as an extra service with Refinitiv World Check.  Whenever you scan a business card, if you have subscribed to that function, we can then check that person and organization and give you a very good chance of understanding if they are a good potential or a questionable potential to be working with.

We are working with a lot of those companies because they require a huge amount of data and trusted sources.  If your strategy decides that this is going to be the way we think you should be investing.  You need to go back in history and try to find a similar moment to say, “Did what I expect to happen, happened?”  "What can I learn from that?"  And then you apply that learning back to the current situation.  We have 50-60 years of every transaction on every stock market around the world.  So you can go and basically move the timeline back.

Thank you very much.