Hiroshi Mikitani, Joi Ito discuss the fintech revolution

Transformative ideas rarely become a reality overnight – more often they take decades to mature and gain traction. But a combination of factors is now rapidly setting the stage for some genuinely transformative fintech to blossom, tech leaders told attendees at the Rakuten FinTech Conference 2016.

“Twenty years ago, when I founded Rakuten, many people told me no one would buy goods over the internet,” said Rakuten Chairman and CEO Hiroshi Mikitani. “The situation with digital money today is very similar.”

Mikitani was reflecting on the current fintech boom in a discussion with Joi Ito, director of the MIT Media Lab. The two compared the current boom in fintech to the birth of the internet and world wide web decades ago.

For instance, the growth of digital currencies such as bitcoin has led many to question the definition of money itself. Comparing emerging virtual currencies to the Rakuten points distributed as shopping rewards, Mikitani explained that more than ¥400 billion of the latter has been issued already, and that the total will reach ¥1 trillion within a few years.

“We need to have a discussion about what constitutes currency, including digital cash such as bitcoin,” Mikitani said. “But regulations in Japan have become obstacles to innovation and have left the country lagging behind. We’re a finance-oriented country so it would be a real shame if we lose in fintech.”

Ito said one of the problems is compartmentalization in Japanese companies and universities. He emphasized the need for people of various disciplines to work together to push innovations toward fruition and international acceptance.

“Japanese companies have some outstanding cryptography experts,” Ito said. “There are also many outstanding theoretical economists, but they don’t talk with the engineers. Computer science people are in major companies, but they’re not given the mission of coming up with something creative.”

Mikitani underscored how many Japanese innovations have only found success domestically, a phenomenon known as the Galapagos problem after the Pacific islands famed for their many endemic species. For instance, he pointed out that the Felica contactless payment standard in Japan differs from the near-field communications (NFC) standard used internationally. He also noted that other countries are taking steps to reduce the importance of traditional currencies while embracing digital options.

“Personally, I don’t want to carry a wallet around. This should be all you need,” Mikitani said, holding up a Rakuten credit card.

Rakuten has a significant history in promoting digital payments. In 2010, it acquired Edy, which offers a prepaid e-money card that can now be used at over 400,000 stores across Japan. In 2015, the company conducted experiments with accepting bitcoin payments on American e-commerce sites and it recently established the Rakuten Blockchain Lab to explore other applications of the blockchain technology on which bitcoin is based.

Meanwhile, Mikitani called on the Japanese government to encourage digital payments, for instance by legislating that tax payments of ¥50,000 or more be made via electronic means. He advocated a “digital first” approach to payments and processes such as company registrations, adding it could help to foster the growth of startups.

“As fintech is completely digital, the magnitude of change it will bring about is far greater than that of e-commerce,” Mikitani said during remarks to conclude the conference.

“In 20 years, we may no longer have national currencies, or there could be a global currency, or a barter system, or even a new system of trading that is conducted entirely by computers.”

Read more posts from the Rakuten FinTech Conference 2016 here.