The Inside Story of Financial Technology in Japan (2019)

The last year has seen cause for optimism in Japan’s growing economy. Following on from strong figures posted throughout 2017, 2018’s second quarter saw a three per cent rise in GDP, the highest climb in more than two years, outstripping the 2.6 per cent previously predicted.

The momentum has been spurred on by a sharp increase in business venture and growing capital investment by private firms, and this continued optimism in the markets has encouraged a number of industries to look to the future.

Companies within the financial services (FS) sector, set on a firm footing by this GDP growth, are particularly keen to capitalise on the buoyant mood and are looking to technology to improve and upgrade IT solutions. As they pour investment into the development and enhancement of systems in terms of stability and performance, companies are driving a necessity for recruitment in this area as well as a desire for candidates in the front office investment banking space for developers, application support and production support roles.

This promising period comes at a time when Japan’s Financial Services Agency is laying the groundwork for a regulatory overhaul of the ¥1 quadrillion banking industry. The potential change, an alteration to the legal framework ensuring that all FS providers are subject to the same rules — allowing emerging companies such as technology start-ups to compete directly with traditional financial institutions – is shaking up not only how FS organisations operate, but how their IT solutions are implemented.

In order to cope with these new regulatory changes alongside others imposed either by international governing bodies or global headquarters bringing its regions inline, firms are on the lookout for finance technology specialists in the IT governance area, including IT auditors and information security officers and managers.

A further trend encouraged by the positivity in the markets is the onshoring of a number of operations, returning functions to Japan. While this is most obvious in manufacturing, it is also prevalent in the finance technology sector. Companies that have spent decades expanding their footprints in Asia and beyond, offshoring their finance technology departments, have found that any savings made are at a detriment to the quality of service provided and are now reversing the trend.

This is predominantly being seen in foreign-based banks, and they are looking to recruit the well-developed expertise of Japanese candidates that can be found in application support and projects, with the latter requiring individuals for the roles of project managers and business analysts.

Although companies are understandably bullish in the positive market, there are still areas in which companies are looking to cost-saving initiatives. Organisations spend on average between four and six per cent of revenue on IT, half of which is outlaid on suppliers and vendors.

Many Japanese FS companies use vendors not only for development work, but also for infrastructure management and application testing. However, many of these firms do not see positive cost performance returns from these vendors, and the knowledge and experience developed during the process remains with the vendor; when the vendor moves on to a different project, the expertise goes with it. To rectify this problem insurance firms and banking institutions are instead looking to inhouse these services, recruiting candidates to serve this purpose, in doing so retaining both the knowledge and the control, saving costs in the long run.

While Japan’s start-up scene remains comparatively small by global standards, with a deepening pool of entrepreneurial talent, the growing patience of investors and dynamic government support programs, this situation is only likely to change, particularly in Osaka, which is emerging as Asia’s hottest start-up location.

According to Allen Miner, former head of Oracle Japan and CEO of Sunbridge Group, “There’s probably no economic centre in the world that is as under-utilised as a platform for entrepreneurship as Osaka”.

Of course, this is seen as a mostly positive situation for the industry. However, for traditional banks and insurance companies it means facing increasing competition for candidates in the finance technology sector from fintech startups. These smaller organisations are proving popular with younger candidates wanting to work on vogue technologies such as blockchain and centralised crypto-trading and are attracted by the ‘cool’ factor that the startups exude.

Looking to counter this, some of the large, established organisations – especially the investment banking and insurance management giants – are looking to promote their brands through showcase events. Here they demonstrate the technologies that they themselves are developing as well as the benefits and status inherent in working with some of the biggest names in the world of finance.

Companies are also looking to the encouragement of diversity within their ranks to augment the talent in their finance technology teams, with a concerted effort to hire more women a primary concern. IT is an area in which the gender gap is perhaps more notable than other industries, and there is a real desire to redress this balance, with banks and insurance firms actively prioritising the hiring of female candidates, often recruiting women who may not be as strong as their male competitors and providing additional training where necessary.

Other tactics to attract more women to finance technology teams include providing maternity leave support as well as flexibility around work/life balance benefits. There are also examples of companies reaching out to previous employees who may have taken time out to raise families and felt unable to return to work under practices that were less friendly to working parents, advising them of the policy changes and offering a route to return.

Another area in which companies are looking to mine talent in order to counteract skills shortages is overseas, particularly in technical areas and application support roles where the requirement for Japanese ability is minimised.

But no matter where the talent is sourced, there is a definite desire to expand finance technology departments in a wide array of positions. As Japan’s economy continues to thrive, companies look to onshore, and with the implementation of yet more disruptive regulations there is a necessity for candidates right across the field, a situation that is not expected to subside any time soon.

If you would like to discuss this report in more depth or you wish to discuss your job search or recruitment needs, please email AkasakaIT@hays.co.jp.