TOKYO/KYOTO -- Among Tsuyoshi Yoshiwara's clients is an 87-year-old widow who owns a mountain and a forest in a rural area just outside Tokyo. Vulnerable, and with valuable assets, she has been the target of several scams. A sales agent from a construction company convinced her to build a block of apartments on her land, persuading her to "sign" the contracts with a thumbprint. A local credit cooperative sold her a $50,000 life insurance policy she didn't need.

Yoshiwara, the former president of Jonan Shinkin Bank in Tokyo, runs a service that provides guardianship services for elderly people. Together with his lawyers, he had both of the widow's transactions canceled.

"No matter how much money you have, unless you can look after it, you just become prey," Yoshiwara said. "There are a lot of bad guys out there."

Financial fraud targeting elderly people is a growing social problem in Japan, ranging from "ore-ore" phone scams, where a fraudster calls up claiming to be a relative, through to sophisticated, institutional-scale misselling of products.

On Dec. 18, government-backed Japan Post Holdings admitted that as many as 156,000 customers, most of them elderly, may have been talked into signing unnecessary and expensive insurance contracts between 2014 and 2018. Some customers were made to change policies repeatedly for no reason, or pay multiple times for the same service. Sales representatives often preyed on the same individuals when they found that they were easy to cheat. According to figures from the Japanese police, 78% of the victims of scams in Japan in 2018 were over 65.

Elderly Japanese in Sugamo, known as Tokyo's "Harajuku for grannies." (Photo by Ken Kobayashi)

The rapid graying of the Japanese population is challenging the basic premise that economic agents, such as consumers, investors and business owners, are capable of exercising independent judgment. Many now need assistance. But financial fraud targeting the elderly has become so widespread that banks are increasingly nervous of dealing with older clients. Executives at several major financial institutions told the Nikkei Asian Review that the risk to their reputations and the cost and complexity of preventing problems far outweighs the value of elderly customers to the bottom line.

"Big banks are only interested in businesses that are profitable ... but helping the local community is a mission of local banks," said Yoshiwara. "Dealing with aging issues has to be part of their responsibility."

Doing so is likely to become a business imperative. Half of Japan's $17 trillion in personal financial assets is owned by people aged 65 or older, according to research from Kohei Komamura, a gerontologist at Keio University in Tokyo. Of this, the share of "older old," or those 75 or above, is expected to increase from 50% to over 60% by 2030. The Financial Services Agency predicts that $2 trillion in personal financial assets, or over 10% of the nation's total, will be in the hands of people with dementia by 2030.

The dramatic aging of the population creates problems for banks that go far beyond financial fraud. But, save for a few outliers, the Japanese banking sector has been far too slow to react, meaning that the industry is heading for a massive -- but entirely predictable -- crisis.

"Demographics are one of the few areas where we can project into the future. We've always known that we're going to end up in the place that we're in today. It's not a surprise," says Florian Kohlbacher, director of the Economist Corporate Network in Tokyo, and an expert on aging. "So why haven't we done our homework 20 years before ... to prepare for where we are today?"

Banking woes

Japan's banking sector has been becalmed for a decade. A population that is both shrinking and aging -- particularly in rural areas -- has led to dwindling demand for bank loans, mortgages and brokerage services. The Bank of Japan's attempts to keep growth rates up through accommodative monetary policy has depressed margins. This has been particularly acute for regional banks, whose interest income is falling faster than they can cut costs, according to Moody's Investors Service.

These challenges have often seemed overwhelming, meaning that few banks have been able to find space and capital to rethink their strategies, or to think creatively of ways to derive more value from their customers.

In that environment, some banks have simply pulled back their exposure from the elderly market, seeing older customers as a risk to their reputations. One official at a megabank told Nikkei that it is not actively seeking business with older consumers, due to concerns that family members may dispute contracts.

Others, however, have decided that embracing older clients could provide them with new, much-needed revenue streams.

On a recent Wednesday, around 20 elderly clients of Kyoto Shinkin Bank gathered in the cooperative bank's headquarters. Over 90 minutes, they participated in music therapy sessions, sang "Comin' Thro' the Rye" to an organ accompaniment, and listened to an introductory lecture about the public nursing-care insurance system.

One of the seminar's participants, 77-year-old Keiko Kodama, says she is concerned about her future because she lives alone and her son lives a 40-minute drive away by car. She says she has enjoyed other programs offered by Kyoto Shinkin Bank, including those on flower arranging, knitting and storytelling.

"I've been living alone since I lost my husband 14 years ago," she said. "I want to be able to take care of myself as much as possible and avoid becoming a burden to my son."

As many as 70% of the bank's customers are 65 or older, and the bank has invested in making its branches and staff welcoming for senior clients. All of the reception desk counters at its 91 branches have been lowered so that customers can sit for their consultations, and all 1,700 of its managers and clerks are expected to go through training to familiarize them with signs of dementia.

"We want to be the platform for people's journey across their life, including childbirth, home and car purchase, planning for your children and planning for your legacy," said Toshiyuki Masuda, the bank's chairman. "Our rivals compete in cheap interest rates. We don't engage in price wars. We focus on creating value with customers because we believe people will ultimately choose a bank that serves them best in the long term."

While some megabank officials see risk in responding to the demographic shift, smaller Japanese banks have spotted an opportunity. Kyoto Shinkin Bank holds information sessions for its elderly clients, and has been making changes to its service to better accommodate them. (Photo by Ken Kobayashi)

At Hiroshima Bank, another regional lender, elderly-related services, such as estate-planning and financial guardianship, are among the fastest-growing business lines.

"We are not doing this service for charity," said Ryota Tanabe, who spearheads the elderly-related business for the bank.

Tanabe said that elderly people today are far less resistant to having conversations about death and dementia than previous generations. "Having seen many people grow old and die around them, they show a keener desire to avoid burdening their family with unnecessary problems," he said.

In September, another Japanese bank, Mizuho Trust & Banking, launched an account management service for people with dementia. The bank starts overseeing the elderly customer's account when they are diagnosed with dementia, and takes care of payments from the account on their behalf.

"More and more assets are in the hands of elderly as the population ages," a Mizuho Trust official said. "Financial services need to respond to disparate needs of elderly [people] with different health conditions, amounts of wealth and family circumstances."

Technology will play a part in opening up this market segment. Kyoto Shinkin, for example, is trialing technology developed by startup Money Forward.

Money Forward director Toshio Taki has been working on financial services for the elderly in the last few years, having seen his parents struggling to deal with his grandmother, who had Alzheimer's disease. His company is developing an app whose end goal is to identify early signs of cognitive decline by analyzing spending patterns using open banking data. The app will also send out alerts to family members if it detects unusual spending, in order to protect them from fraud.

"When you think about Japan's economic trends, it is difficult to imagine private consumption or borrowing will increase amid a falling population," he said. "Regional banks need to look for other ways of generating revenue, such as assisting in planning a legacy, drawing up a will, keeping it safe and executing it, and managing real estate on behalf of customers."

Latent demand

Money Forward is a pioneer in a very nascent space in Japan for financial technology that specifically targets services for elderly customers. The emerging industry, however, has struggled to attract investment from venture capital companies more focused on established market segments, such as payments.

Just as the country's banking industry has been slow to react to the aging of its consumer base, so, too, is the financial technology sector only just waking up to the potential of older users. Billions of dollars of venture capital money have poured into creating payment systems and financial products for millennial users, but the sector as a whole has often neglected their parents and grandparents -- who, in reality, own far more assets.

"It's really hard to have a fintech product focused on the elderly, because it's really not the low-hanging fruit," Maurizio Raffone, CEO of Finetiq, a Tokyo-based fintech consultancy.

Perhaps a bigger challenge is at the market level. Getting Japanese banks to adopt new technology, even to solve such a glaring problem, is far from easy. Japan's financial institutions are notoriously conservative, and have lagged behind their regional peers for years.

"I think fundamentally they don't want to do it," Raffone said. "They still want people to come into the branches."

That makes it difficult for fintech companies developing new products to even get through the door at banks.

That is compounded, said the Economist Intelligence Unit's Kohlbacher, by an enduring belief within the fintech sector -- and banking at large -- that old people simply cannot, or will not, use technology.

"It's always easiest to blame it on the customer," he said. "People say; 'old people don't know how to use technology.' If you're a fintech and older people can't use [your product] because they don't understand it, it's not the problem of the consumer, it's your problem, because your solution is not good enough."

Kyoto Shinkin Bank staff watch a training video on handling elderly clients. The pictured scene is labeled as a "bad example." (Photo courtesy of Kyoto Shinkin Bank)

That said, solutions are coming, and are being financed. Often, their genesis comes from the founders' personal experience of dealing with dementia.

Elli Kaplan started U.S.-based Neurotrack Technologies six years ago after losing two grandparents to Alzheimer's disease. After studying drug development in the pharmaceutical industry at business school, she realized that progress on Alzheimer's and other age-related conditions was lagging far behind other fields of medical research.

"When you step back and look at what's happening demographically, globally, it just struck me that this is a disaster coming down the pipe that nobody seemed to be paying attention to," she said.

Neurotrack adapted technology that was being developed to pick up the early warning signs of Alzheimer's, initially for use within the pharmaceutical industry. Since then, the company has pivoted to focus on providing diagnostic and management tools for private businesses, from health care to financial services, to help them to understand and care for customers with cognitive impairments.

A year ago, Neurotrack announced a partnership in Japan with Dai-ichi Life Holdings, the insurer, to offer a dementia insurance product. If Neurotrack's system identifies early symptoms of dementia, confirmed by a doctor's diagnosis, the policy pays out. Dai-ichi sold 100,000 policies in four months -- almost twice as fast as its rivals who have launched equivalent policies without the Neurotrack feature, says the insurer.

Another insurance deal will be announced early in 2020, and Neurotrack is exploring potential uses with partners across various sectors, from banks to the auto industry. "We see private industry is stepping up, because they see a market opportunity," Kaplan said.

Kai Stinchcombe, co-founder of U.S.-based True Link Financial, which offers debit cards for elderly clients and their families, said that fintech, as well as the mainstream finance sector, is beginning to reframe its thinking around age, focusing more on where the money really is.

"In Japan, only 28% [of personal financial assets] are held by people under 55," he said. "Starting to think of people under 55 as a niche market is a revolutionary way to think. ... The mainstream market is actually the aging market."

Adoption of this technology may be inevitable, as banks struggle to keep up with the sheer number of elderly customers coming through their doors. Hiroshima Bank is working on an automated consultation service for estate planning and financial guardianship in response to surging demand.

"The number of elderly customers is growing rapidly. We have hundreds of thousands of them. It's impossible to listen to all of them. We are working on creating a computer-based consultation service," Hiroshima Bank's Tanabe said.

The sheer scale of the challenge should force Japan's struggling banks to act. Komamura, the gerontologist, summed up the issue succinctly.

"Older people are always the main clients of financial services because they are the ones with money," he said. "If they become unable to transact, it means the industry would lose its most important customer base."

However, long-term watchers of the sector are yet to be convinced that Japan's banks will move in time to avert more serious challenges. The EIU's Kohlbacher said that this is something that the sector has been aware of for decades, and has continued to delay.

"There are always fires to put out. There is always something more urgent than aging. We need to create a sense of urgency. We're already late to the game," he said. "It's the boiling frog syndrome. We're sitting in cold water and it's getting warmer and warmer but we just don't realize. We're pushing it back so far we're just going to get boiled, essentially."