Through the deal, Sumitomo Mitsui, the nation's second largest bank, will acquire a stake in the mobile only brokerage unit of SBI, the nation's top online broker. SMFG will also put money into a 100 billion-yen ($930 million) fund SBI will set up to invest in financial technology companies.
The deal will combine the nationwide branch network of SMFG with SBI's dominant presence in online trading. It is expected to help the partners create products and services that will better cater to millennials.
The partners are expected to sign the deal this week.
The financial groups are also considering mutual capital ownership as a way to deepen their ties.
The tie-up comes as digital technologies tempt companies outside the finance industry into the sector, further intensifying competition.
Chat app operator Line, for instance, offers financial settlement, investment and insurance services through its app, while online retailer Rakuten provides a full range of financial services through its banking and brokerage units.
The deal will complement each partner's weaknesses. SMFG is trying to beef up its digital offerings, while SBI is seeking to add face-to-face consultations to its digital services.
SMFG will acquire 20% of the shares of SBI Neo Mobile Securities sometime in June. It is estimated that the investment amount will reach several billions of yen.
Neo Mobile offers an investment service that is popular among people in their 20s to 30s who have little investment experience. Customers can put the points they earn with their T-Point cards into their investments.
Anyone can get a T-Point card in Japan. For every 100 yen 200 yen spent with these prepaid electronic money cards, users earn 1 point, or yen, that they can spend at participating retailers.
SBI Neo Mobile's service allows investments of as little as a few hundred yen.
SMBC Nikko Securities, which is under SMFG, mainly targets elderly users and intends to expand its user base through the partnership.
The two groups plan to offer a range of products, including mutual funds and insurance policies.
SBI's planned 100 billion yen investment fund that is to be set up with SMFG will focus on investments in companies that work with digital technology, including fintech, blockchain and 5G wireless networks.
SMFG and SBI plan to accelerate their digital business strategies through collaborative efforts with investee companies.
The partnership will also include the joint development of a support business for regional banks and other financial institutions.
SBI has been strengthening its alliances with regional banks and has entered into capital tie-ups with local lenders such as Shimane Bank, Fukushima Bank and Chikuho Bank.
The top online broker plans to set up a new company that will offer fintech and common system services to regional banks sometime after next month. SMFG has also agreed to invest in this company.