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Lower Costs May Attract Customers

January 9, 2001
Full Internet banking has arrived in Japan. Japan Net Bank, the first in Japan to operate entirely on the Internet, opened for business on October 12, 2000. Sony Corp. plans to establish a Net-based bank in spring 2001, while in the securities industry, several Net-only stockbroking firms have come online since the total liberalization of share trading commissions on October 1, 1999. Internet banks first appeared around 1995 and have since been growing in number, particularly in the United States. The emergence of Net banking in Japan may signal the start of a new trend in the banking industry.

Convenience and Competitive Interest Rates
The driving force behind the establishment of Japan Net Bank was Sakura Bank, one of Japan's major commercial banks. Initially the new bank will provide consumer-focused financial services. Having opened an account online with Japan Net, customers can deposit cash to their accounts via Sakura Bank's ATMs, of which there are about 5,100 nationwide, by phone, or via the Internet. They can then access most other services online, including through Internet-capable cell phones. Since the bank is open 24 hours a day, customers no longer face the bother of telephoning or visiting a branch during business hours.

With its only "branch" located inside a computer, Japan Net requires only about 100 employees. This makes its operating costs much lower than old-style banks. The Japan Net Bank has used this advantage to offer consumers better terms than are available from conventional banks.

For example, it pays interest of 0.20% on ordinary deposits and 0.40% for time deposits of over 100,000 yen (909 U.S. dollars at 110 yen to the dollar). These are double the rates offered by conventional financial institutions. And unlike conventional banks, the interest earned on time deposits is the same whether the amount invested is 100,000 yen (909 dollars) or 100 million yen (909,000 dollars). This is because it takes the computer the same time to process large amounts as small amounts. The bank does not issue deposit books, and account statements are shown online.

Japan Net Bank's charges for transferring money to other banks are also cheaper, at 168 yen (1.50 dollars) for amounts up to 30,000 yen (273 dollars), compared with about 630 yen (5.70 dollars) at conventional banks. Another service offered by the new bank is to provide customers with statements of their utility and shopping bills, so that they can pay these bills whenever they wish. The advantage of this system over automatic transfers is that payments can be made when it is convenient for the customer. In addition, customers can check a list of invoices received. Companies save the cost of mailing invoices, and the administrative work required to check incoming payments is also reduced.

Clientele Reflects Internet Population
According to Japan Net Bank's initial plan, it aims to use its status as an Internet bank to attract one million accounts and total deposits of 1 trillion yen (9.09 billion dollars) within three years. Funds deposited will be invested in personal loans, the government bond market, and the call market (a market for short-term interbank borrowing and lending). Income from these sources is expected to account for about 80% of total earnings.

By January 8, 2001, about three months after its launch, Japan Net Bank had received approximately 36,000 applications for accounts, which its management regards as a "satisfactory" number. The customer base consists of 85% males and 15% females. Geographically, 53% of customers are in the Tokyo metropolitan area, with the remainder scattered throughout Japan. These figures basically reflect the composition of Japan's Internet population. An age breakdown shows that 37% of customers are in the thirties, 28% in their twenties, and 25% in their forties.

Sony Corp. and other companies planning to move into the market will be monitoring the extent to which Japan Net Bank increases its customer base. Of particular interest will be the success or failure of Japan Net's account maintenance fees, the first such charges to be applied by a domestic Japanese bank. A customer whose account balance falls below 300,000 yen (2,727 dollars) must pay the bank a monthly fee of 1,050 yen (9.5 dollars). The bank explains that this is a way of making users pay for system maintenance costs. With conventional banks currently charging nothing for low balances, if consumers accept Japan Net's charges, other banks may change the way they handle low-balance accounts.

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Trends in JapanCopyright (c) 2001 Japan Information Network. Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.