Internet Banking Heats Up in Japan:
Issued: May 8, 2000
Would-be Net banks jockey for position
New online institutions eying settlement services for Web-based transactions
MAKOTO SATO
Staff writer
With the Financial Reconstruction Commission expected to license banks with no physical branches to provide online services, the competition to provide Internet banking has intensified.
Japan Electronic Settlement Planning Inc. (JESP), owned largely by major trading company Itochu Corp., recently announced plans to establish an Internet bank. Sakura Bank, scheduled to merge with Sumitomo Bank by April 2001, has already begun efforts to establish Japan Net Bank, the tentative name of its new Internet bank. Sony Corp. is also keen to establish its own online bank to capture demand for e-commerce transaction settlements. Even automobile company BMW Japan Corp. is considering launching an Internet bank by the end of 2001.
Japanese generally are less receptive to credit cards than in the West, and many are especially reluctant to give out credit-card information over the Internet. That tendency threatens to hinder e-commerce in Japan. So would-be online banks expect that developing a way for consumers to pay for products on the Web without using credit cards is a potentially lucrative business. They are ignoring the skepticism coming from most banking analysts, who question the feasibility of Internet banking working without being part of a larger online business.
"We are planning to handle 650,000 accounts by 2002," said Taiichi Matsuo, chief executive officer of JESP. The company's e Bank plans to provide transaction settlements for business-to-consumer e-commerce and even consumer-to-consumer commerce. Citing very low-cost operations, e Bank executives think they can lower the commission fees charged to e-commerce operators to 3%, compared with over 5% charged on credit-card purchases.
E Bank says its main business will be to provide payment for Web purchases. To this extent, Matsuo of JESP is not expecting each customer to deposit more than 50,000 yen ($463). Since e Bank will not have physical branches, customers will need to transfer funds from their accounts at other banks.
Still, while Matsuo says e Bank was not designed to be a customer's main bank, he's hoping to lure bigger deposits by possibly providing high deposit interest rates.
Sony plans to launch its banking business in the first half of 2001. Tamotsu Iba, vice president of Sony, claims there is virtually no difference between selling camcorders and operating a bank. "Banks should have a marketing ability and an ability to produce attractive products, otherwise consumers will not be attracted. We wish to introduce foresight and easy operation, which are Sony's strong suit, into the banking business," he said. Sony officials said they want to create a bank to settle transactions for their online product malls, including the company's music and later video download services.
Six groups have already announced plans to start Internet banking, but only Suruga Bank, a regional bank based in Shizuoka Prefecture, actually started its service, on April 17. On its Web site, the bank is offering customers interest rates twice as high as normal for time and ordinary deposits.
Suruga's Internet business is supported by partner Softbank Corp. Yoshitaka Kitao, president of Softbank Finance Corp., the financial arm of the Softbank group, said Internet banking will work because it is low-cost. "With no physical branches, our costs are lower and we can pass on those savings to our customers through free ATM (automated teller machine) access and higher interest rates," he said. Softbank is also nearing similar pacts with about 10 leading regional banks throughout Japan.
Koya Hasegawa, a banking analyst at UBS Warburg (Japan) Ltd., said Internet banking could help regional banks develop their business nationally. "It is certain that regional banks should introduce Internet banking, to protect their franchise and to advance into other banks' territories. Within two years, the difference between Internet-aggressive regional banks and Internet-reluctant ones will be apparent," he said.
Still, Hasegawa does not think anyone will be able to tackle Internet banking singlehandedly. "Internet securities brokerages are rapidly expanding in Japan, because customers constantly check the stock prices of their portfolio. But no bank customers will check their account balance that often. That means banks will have to tie-up with other industries to attract customers," he said.
Sakura's Japan Net Bank is an example of the right way to approach Internet banking, according to Hasegawa. The company plans to connect Internet banking, a nationwide ATM network and consumer-loan services.
Setsuko Akiba, senior banking analyst at the Tokyo branch of Deutsche Securities Ltd., thinks Internet banks need to be more than just a way for consumers to buy something off the Web. "I don't think e-commerce settlements are enough," she said. Akiba advocates that Internet banks partner up with sites which have the potential to seize a large chunk of Japan's e-commerce business.
"The flow of business will not be complete just by dominating business to consumer e-commerce. Those who win the dominant position in business-to-business e-commerce settlements will win the Internet-banking competition," said Akiba.
She looks favorably on plans by Mizuho Financial Group - the mega-bank being formed by Industrial Bank of Japan, Dai-Ichi Kangyo Bank and Fuji Bank - to start a cyber shopping mall within the year. Payment for purchases will be withdrawn instantly from customers' accounts at Mizuho.
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