Responding to the World's Needs With the Power of Technology

By Plug and Play Fintech Team Published on Nov. 15, 2022

Sumitomo Mitsui Financial Group, Inc., or SMBC Group, has positioned digitalization as a pillar of its business strategy and is actively promoting the use of advanced technology. In 2015, the company joined Plug and Play as a corporate partner in the Fintech vertical. Subsequently, in 2017, they established the Silicon Valley Digital Innovation Lab on the west coast of the United States for advanced technology research. It has achieved collaboration and investment with several startups. We spoke with two Silicon Valley Digital Innovation Lab members and two from the Digital Strategy Department about this series of initiatives.

Meet the respondents

Akinobu Funayama, Head of Silicon Valley Digital Innovation Lab, SMBC Group

Tomohiro Oka, Executive Director, Silicon Valley Digital Innovation Lab, SMBC Group

Hiromitsu Shimoirisa, Senior Vice President, Digital Strategy Department, SMBC Group

Ikki Okada, Digital Strategy Department, SMBC Group

Why SMBC Group opened an office in Silicon Valley

Plug and Play: Tell us about the current trends in the financial industry and how you perceive the changes.

Funayama: The environment and regulations surrounding banks, including SMBC Group, are changing daily, and we at SMBC Group are seeing a significant shift in the attitudes of corporate and individual customers, who are increasingly expecting to use digital services convenient and easy to use. We have also established about 10 subsidiaries in the Digital Strategy Department as companies engaged in the banking industry. We have been working on the digitalization of the banking industry.

In 2016, the SMBC Group established the IT Innovation Department, the predecessor of the Digital Strategy Department, to strengthen digitalization. In 2017, we founded the Digital Innovation Lab in Silicon Valley, which has since positioned digitalization as a pillar of our business strategy. The timing is right for our organization and structure to catch up with the desire we have always had to provide new value with digital services as a starting point.

Plug and Play: Could you tell us more about the role of the Digital Innovation Lab?

Funayama: The term "Fintech" was just starting to become popular at its establishment. Financial institutions were also taking on new challenges using technology. We established the Digital Innovation Lab to streamline and upgrade services within the Group and to research and study cutting-edge technologies and startups.

Recently, in line with the promotion of digitalization, we have committed to creating businesses in collaboration with the Digital Strategy Department in Tokyo, taking advantage of our geographical location in Silicon Valley. In this environment, we can be in touch with the world's latest technological advances. Of course, we don't just find these on our own and introduce them unilaterally. Our mission is to research the technologies and business models from Silicon Valley based on the needs sourced from the Digital Strategy Department and link them to open innovation.

Plug and Play: What motivated participation in the Plug and Play program?

Oka: We wanted to utilize the network and know-how of Plug and Play as an inspiration for innovation - to take advantage of it for creation. Although we were aware of the challenges of digitalization, we didn't want to build everything from scratch, so we joined the program in 2015 to benefit from Plug and Play's network and experience in Silicon Valley. This was two years before we established our Digital Innovation Lab in Silicon Valley.

Plug and Play: What did you get out of working with Plug and Play?

Funayama: Plug and Play's network is unparalleled. Plug and Play has offices not only in Silicon Valley, but also across the world. We have industry-specific investment managers, so we had high expectations for their track record of investing in startups across various industries.

Another thing is that Plug and Play has 500+ leading partners worldwide (as of 2021), and keeps abreast of trends in each industry daily. In other words, if we participate in a Plug and Play partnership, we can promote innovation while exchanging information with the startup and each industry. We couldn't ask for a more encouraging partner to help us take our first steps in Silicon Valley.

Plug and Play: Please tell us about your open innovation activities since the establishment of the Innovation Lab.

Funayama: To be honest, it's been a series of trials and errors. We were so eager to achieve results that we were technology-driven and had proposed to the user department, where the customer's needs were gathered, saying, "we've found such amazing technology." Still, I felt that the probability of business matching wasn't very high. This was because we didn't properly understand the issues the user department was facing. However, we were working with the desire to provide new value, services, and products to our customers, both corporate and individual, and meet their expectations.

Oka: We implemented the Silicon Valley Engagement Program to improve such a situation. The Digital Innovation Lab and the Digital Strategy Department collaborated to identify specific needs from members in Tokyo and to research and evaluate them jointly.

We started by compiling a single sheet of information in English on issues recognized by the Digital Strategy Department, user insights, and expected solutions. Then, we enthusiastically communicated this information to the venture capitalists involved, including Plug and Play.

Gradually, changes started to occur. Communication with the startups has become smoother since we started working on the Silicon Valley Engagement Program with Plug and Play. We can now accurately convey our requests and challenges to them. As a result, we can efficiently find appropriate solutions, and the probability of progressing to PoC and production implementation is increasing.

Plug and Play: Have there been any results from the Digital Innovation Lab?

Funayama: Recently, we have developed an AI system using advanced natural language processing in collaboration with the Allganize and Japan Research Institute.

We have been using natural language processing technology with various AI systems. The major challenge was to conduct repeated training on an extensive data set to improve accuracy.

During this time, we met a natural language processing company called Allganize, participating in a Plug and Play event. By combining BERT, a general-purpose language model, and ALBERT, a derivative model of BERT, with Allganize's proprietary technology, we were able to create an optimal AI model that significantly reduced the load on the data set and training.

In the SMBC Group, SMBC Nikko Securities and Sumitomo Mitsui Card have already introduced the system as their call center operations and inquiry response systems.

Plug and Play: Please tell us about your upcoming plans.

Funayama: We're planning further development of Allganize because it's possible. For example, documents, or character data, which many companies store, have been extracted in various forms, such as OCR, or Optical Character Recognition/Reader. These couldn't be handled unless they were structured.

However, by utilizing Allganize's advanced natural language processing, it's now possible to analyze unstructured documents. The AI can read and extract the relevant data if you decide on a question for each item you want to manage in a document, such as a name or address. We can think of many other things that can be done besides call centers and response inquiries.

Funayama: As for the Digital Innovation Lab, we're working on a digital strategy.

As a digital innovation lab, we plan to deliver the services that customers need as quickly as possible, working in tandem with each company and department, with the Digital Strategy Department's central role. We would like to strengthen our collaboration more than ever with startups that share our thoughts to accomplish our mission.

Oka: The past year or two have been particularly strong, with many projects from the Digital Innovation Lab progressing to POC, production implementation, and launching new businesses. In the process, Plug and Play has introduced us to many startups, and we hope to accelerate this trend even further in the future.

Okada: We've been very fortunate to have Plug and Play as a partner in our accelerator business.

We've received continuous support from Plug and Play in the past through their accelerator program and by holding events to realize open innovation. I believe that we will face new challenges in the future as the mindset within the group develops and phases change. We will continue to deepen our collaboration across divisions and would happily work together as partners to promote open innovation.

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