Tokyo, March 27

A laggard in embracing the ‘fintech’, or financial technology revolution, Japan is set to ease investment restrictions that could free up the flow of capital in an economy sitting on an estimated $9 trillion in individuals’ cash deposits.

Strict regulation, easy access to credit due to rock-bottom interest rates, and weak demand for innovative financial services from a risk-averse population that still prefers cash to credit cards, have strangled fintech’s advance in Japan.

Fintech ventures — usually start-ups leveraging technology from cloud data storage to smartphones to provide loans, insurance and payment services — raised $2.7 billion in China last year, and over $1.5 billion in India, according to CB Insights data. Ventures in the US attracted investment of $7.4 billion.

In comparison, investment in Japanese ventures reached only around $44 million in the first nine months of 2015.

Now, Japan’s financial industry regulator hopes relaxed rules on investing in financial ventures, and a new system for regulating virtual currency exchanges will pass through parliament by May — a first step in kickstarting the fintech revolution in the world’s third-biggest economy.

“The law changes aren’t a goal, but a first step,” Norio Sato, a senior official at Financial Services Authority (FSA), said. “Fintech will have a big impact on financial services.”

The changes, which will allow banks to buy stakes of up to 100 per cent in non-finance-related firms, will free up Japan’s three megabanks to enter into tie-ups with fintech ventures developing services including robotic investment advisory and blockchain, the decentralised ledger technology behind the bitcoin digital currency.

Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group have said they are eyeing such investments, having previously been restricted to holding stakes of only five to 15 per cent in start-ups.

Under pressure from weak loan demand, megabanks see an opportunity to earn money through fintech, but are also aware of its potential to disrupt traditional business models.

The unpromising fintech environment in Japan — which was blindsided by the high-profile collapse of the Mt Gox bitcoin exchange in 2014 — has seen some entrepreneurs go overseas for funding.