Mizuho readies fintech war chest

Views Of Mizuho Financial Group Inc. As Mizuho Set to Punish Bank Executives Over Crime-Group Loans...A pedestrian walks past the corporate logo of Mizuho Financial Group Inc. displayed outside the Mizuho Bank Ltd. headquarters in Tokyo, Japan, on Friday, Oct. 25, 2013. Mizuho Financial Group Inc. may cut pay and add new board members to mollify investors, lawmakers and regulators after failing to end loans to crime groups in the biggest scandal of President Yasuhiro Sato's two-year tenure. Photographer: Kiyoshi Ota/Bloomberg©Bloomberg

Mizuho Financial Group is building a pot of money for global acquisitions of financial technology companies as Japan’s second-biggest bank attempts to leapfrog its local rivals after years of industry torpor.

Despite its strong position in consumer technology, Japan has lagged behind its global peers in harnessing the so-called “fintech” wave of digital disruption in banking.

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The country’s lenders, felled by the bursting of the bubble in the 1990s, have long lost their appetite for risk and continue to struggle as negative interest rates erode profits from bread-and-butter lending.

In an interview with the Financial Times, Mizuho’s president Yasuhiro Sato described plans to build the next generation of consumer lending on smartphone services and using “big data” analysis to manage credit risk.

Further down the line targets include peer-to-peer lending and investment “robo-advisers”, he said.

Mizuho is targeting US acquisitions in the fields of artificial intelligence and big data processing. “We currently have several targets . . . some of the deals will be done this year,” said Mr Sato.

The bank’s advantages, he said, include its ability to move fast and a close working relationship with SoftBank, the tech and telecoms group, which has provided access to fintech players.

“The key issue is speedy decision making, and the fact that I myself will decide on the acquisition. That is a weapon for us,” said Mr Sato.

Like Japan’s other megabanks — Mitsubishi UFJ and Sumitomo Mitsui — Mizuho’s share price has been dragged down by the Bank of Japan’s negative interest rate policy.

In theory negative rates should stimulate the economy and encourage capital expenditure. The reality, though is that it has created an atmosphere of uncertainty that has instead deterred big investment, Mr Sato said.

Although Mizuho has not disclosed the size of its fintech fund, it is expected to be about $ 50m-$ 100m and to expand significantly later this year. Banking law is due to be amended soon to allow Japanese banks to exceed the current limit of 5 per cent voting rights in a non-financial company.

Fintech companies fall into this non-financial category, stymying attempts by Japanese banks to participate in a global flurry of investment into fintech start-ups that analysts say surpassed $ 10bn last year.

Mizuho, unlike MUFG and SMFG, avoided buying major domestic consumer lending companies during the 2000s and thus is not saddled with a vast residential property portfolio.

But Mr Sato said fintech-led consumer lending business could now allow Mizuho to target younger customers with less risk as big data generated better credit scoring techniques.

“The smartphone using generation doesn’t have much money yet, and as a bank they don’t represent a lot of profit. But if you don’t have to open a physical branch network to do consumer lending for these people, you can make money from them,” said Mr Sato.

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