"IT Companies Give Birth to Financial Services" – Innovation Born from the Lehman Shock

Financial innovation expanded following the Lehman Shock. Why did internet companies enter the financial services sector, traditionally dominated by financial institutions? Continuing from last time, we asked Mr. Tetsuo Iida of ISID about the background and the latest innovation trends in both the US and Japan.

The Lehman Shock sparked a major innovation movement!

――Tell us about financial innovation overseas. It seems more advanced than in Japan, but what's the reality?

Iida: The situation changed dramatically around the time of the Lehman Shock. The Lehman Shock was triggered by "subprime loans" – mortgages given to people with lower incomes. When borrowers couldn't repay, banks' financial health deteriorated. Then, they resorted to aggressive "foreclosures," seizing homes and exploiting people's vulnerabilities. Despite this, banks ultimately collapsed. Witnessing this chain of events, the American public launched a fierce backlash, declaring "banks can't be trusted."

This is where emerging companies stepped in. Internet-based firms like Google developed online payment systems, while startups created services connecting borrowers and lenders... A staggering number of "non-financial IT companies" launched new financial services one after another.

This revealed a key insight: "User-centric financial services still have immense room for innovation." Using the internet, individuals can lend and borrow money directly without banks, and they can track how their deposited funds are used. Lenders naturally earn higher interest rates, while borrowers can secure loans at lower interest rates.

Observing developments in the US, it became clear that leveraging internet and mobile technologies could build entirely new financial services never seen before. Wanting to bring this trend to Japan and stimulate the financial industry, I resolved to pursue the potential for financial innovation domestically.

Declare your savings goals using Facebook! A financial service to gather supporters

――What successful examples exist overseas? If there are any interesting cases, please share them.

Iida: There are many, but one venture company's initiative that particularly struck me as "interesting" involved enhancing the value of a savings product through Facebook.

First, they have individual customers set a savings goal and then start depositing. Next, they publicly declare their savings goal on Facebook, like "buying furniture." Friends and acquaintances who want to support them then make donations. The venture company then shares this information with its partner retailers. The retailers then issue discount coupons. Since it's clear that "this person wants to buy furniture," issuing coupons effectively leads to a guaranteed purchase.

The interest rate itself is no different from a regular fixed-term deposit. However, by using the service, supporters are gained, and retailers offer discounts. This system ultimately provides an effect similar to managing funds at a higher interest rate. This service was made possible precisely because an internet-based venture company adopted a user-centric perspective, thinking, "Let's share information outwardly" and "Let's try an approach where we partner with retailers to lower prices." I felt it was a completely new financial product unlikely to emerge from traditional financial institutions.

What's really hot in Japan right now is crowdfunding!

――What trends are emerging in Japan? What financial service is currently the most popular?

Iida: Crowdfunding is definitely booming. Currently, microfinance—a system that provides start-up capital to help the economically disadvantaged in emerging countries achieve financial independence—is trending. Companies engaged in crowdfunding are beginning to pool individual funds from within Japan and invest them into microfinance. It's also gaining attention as a form of social contribution.

The appeal of this kind of investment lies in seeing how your money is used. The desire to "support someone" or "make a difference" spreads along with the money, yielding a sense of joy and fulfillment beyond mere returns. Finance may be evolving from a mere tool into a service that supports achieving the purpose beyond it.

(Continued in Part 3)