The Financial System Council, an advisory body to the prime minister, has begun discussions on expanding the types of business that can be done by financial holding companies and firms under their umbrella. Banks hope to improve their earning power through the introduction of new services such as Internet-based payments and greater efficiency in financial management by companies in the same group. The council plans to wrap up its discussions by the end of this year for the government to submit relevant bills in 2016. The council should not forget the viewpoint of increasing benefits for consumers, including convenience.

Behind the planned deregulation is the entry into the banking business of information technology companies and retail firms, such as Rakuten and Seven & i Holdings Co. New Internet-based payment services such as Paypal, which originated in the United States, are also expanding.

So far, business activities that can be done by financial holding companies and firms under their wing have been limited to those closely related to their mainstay operations. This policy is intended to stop them from branching out in ways that could damage the health of their banking operations. There are also restrictions on their capital investments in non-financial firms — to avoid bank control of other businesses, as was prevalent in prewar Japan.

Financial companies have been increasingly frustrated with this policy, which they believe deprives them of new business opportunities. They are seeking to establish a new business model through the planned deregulation that would help them cope with the rapidly changing environment.

The planned deregulation will be the biggest of its kind for the financial sector since the "Big bang" regulatory reform in 1998, which made the establishment of financial holding companies possible. At that time, it was expected that regrouping under holding companies would help banks overcome difficulties caused by the pileup of nonperforming loans. A key feature of the deregulation under discussion will be allowing financial firms to explore new business opportunities that utilize information technology.

In the U.S., which is far ahead of Japan in terms of deregulation in the financial sector, the Citi group and JPMorgan Chase have acquired young online companies that offer remittance and discount coupon services. The U.S. system allows authorities to flexibly enable financial holding companies that are in healthy condition to engage in new types of business. Financial firms that start new services focusing on electronic payments are expected to face strong competition from major IT companies such as Google and Apple, which have started payment services using smartphones.

Although new services under the deregulation are likely to increase convenience for customers, banks also need to make efforts to reduce the costs of their services and improve security. Quite a few customers are dissatisfied with the high fees charged by banks for their services as well as their short business hours. Financial firms will need to think of ways to improve customer satisfaction in the deregulated environment.

Another factor behind the planned deregulation is the Financial Services Agency's plans to promote a regrouping of regional banks, whose business has been threatened by the nation's low birthrate and the rapid aging of the population. The FSA is reportedly thinking of allowing holding companies that have regional banks under their umbrella to integrate the management of their funds and ATMs for greater efficiency, thereby accelerating the regrouping of regional banks. The deregulation thus can serve as a catalyst to accelerate the regional bank realignment.