Domestic banks, lagging behind their American counterparts in the use of information technology, are stepping up their Internet banking operations and expanding services available to retail customers via the Net.

At the moment, the number of individual Web users remains at a low level — 30,000 or 40,000 at even the most Net-conscious banks.

These figures are dwarfed by the number of Web banking accounts in the U.S. Wells Fargo, considered a front runner in Net banking, has 1.2 million Web users; Bank of America has 1 million; and Citibank has 400,000.

While these differences are telling, the differing levels of Internet usage in the two countries must also be considered. In the United States, there are more than 80 million Web users, more than 30 percent of the population, whereas in Japan the Internet age is just taking off, with 17 million people, less than 15 percent, hooked up.

Still, city banks that offer Internet banking say customer interest in cyber-banking has been rising alongside the increasing penetration of the Net in Japan.

Fuji Bank says it has about 40,000 retail customers who use the Net. Its membership began to rise a few months ago when it announced the planned start later this month of services in which users of the online brokerage Monex will be able to have funds for securities transactions withdrawn automatically from their accounts with Fuji. Bank officials said they expect the number of customers using the Web to clear the 100,000 threshold around May or June.

Sanwa Bank began offering banking via the Internet in February 1998. It currently has 30,000 Internet users.

Meanwhile, Bank of Tokyo-Mitsubishi, a late starter whose direct banking services commenced in September, has seen membership — which allows access to both telephone banking and Internet banking — surge to 100,000 by mid-December, according to bank officials. It does not track the number of people who use only the Internet.

Nevertheless, experts point out that banks will need to upgrade the services they offer for Internet banking to become more popular.

Current services limited

Services currently offered at most banks are still limited to simple transactions such as money transfer and account balance inquiry. Only a few banks have online shopping malls on their Web sites, or sell foreign currency deposits or investment trusts on the Web.

Experts say domestic banks should use the Internet strategically — or figure out why they offer Web services in the first place.

“In Japan many banks are offering Internet banking, thinking it will improve their cost-effectiveness, or simply because other banks are doing it also,” said Akira Kamoshida, deputy general manager at the Japan Research Institute, a private think tank affiliated with Sumitomo Bank.

“Regional banks (offering Internet banking services) even regard Web banking as an experiment, some with only 100 users or so. That’s a waste of money.”

Kamoshida cited the case of Wells Fargo, which first viewed the Web as a cheaper alternative to branch networks. The bank later realized that embracing the Internet as an additional channel did not necessarily reduce costs because customers kept using both the bank’s branches and the Net instead of switching completely to the Web.

Chihiro Suematsu, a lecturer at Keio University who recently wrote a book on Internet finance, also says Japanese banks should use the Internet not just to sell goods and services, but also to collect data on customers, and use such information to cross-sell and develop products that better suit their needs.

Collating information

In the U.S., both Internet-only banks and brick-and-mortar banks offering Net banking work very hard to collect information from customers, he pointed out.

However, officials at domestic banks concede that unlike in the U.S., Web banking may not become widespread in Japan.

“One reason cyber banking has become so popular in America is because the U.S. is geographically large,” said Toyonori Takashima, deputy general manager at Fuji Bank’s multimedia business division.

“Japan is such a small country, and we have convenience stores, post offices and ‘takuhai’ home parcel delivery businesses everywhere. When we buy something, we most often pay those delivery people at the door, instead of settling purchases electronically.”

Another major difference between the two nations is that Japanese do not often use checks.

For example, while Americans have had to settle their utility bills by writing separate checks and mailing them, in Japan people often have these bills automatically paid from their bank accounts each month.

Because of this practice, Web banking might not be as popular in Japan, experts say.

Despite this, nonfinanciers considering entering the banking industry view the Web as a promising gateway.

Sony Corp. said in December that it is considering starting an Internet-only bank, sending shock waves through the banking sector, which has long been protected by government regulations.

Online shopping mall

Sony envisions Net financing as its key business area, spokesman Tatsuya Inada said. The ultimate goal of the electronics giant is the creation of a Sony shopping mall on the Web where consumers can buy everything with a click of the mouse — from its music and video software to financial products including stocks and insurance — then click again to access their Sony bank accounts on the Web and pay for the goods and services in a single step.

While Sony has yet to come up with specifics of the project, it plans to start business by early 2001, according to the firm.

“The biggest advantage for an Internet-only bank is that it does not require a branch network,” Inada said. “Because of the low fixed costs, we can offer higher interest rates for depositors and lower lending rates for borrowers.”

Sony’s move will probably pose a great threat to the conventional banking business, JRI’s Kamoshida said.

“Sony might have to spend tens of billions of yen to get a banking license, but it is a cheap buy for a company like Sony, which has 1 trillion yen in cash flow,” he said.

Similar moves might follow in the future. Sakura Bank has already announced a plan to set up an online-exclusive bank with Fujitsu Ltd.

Capitalized at 20 billion yen and staffed by a mere 20 people, the branch-free bank will target consumers who do not have dealings with Sakura. It will offer liquid deposits, time deposits, remittances and transfers, as well as small loans, with an initial target of 1 million customers, according to the bank.

Tokyo-Mitsubishi is also considering creating a new Net banking channel separate from conventional direct banking, said Hiroshi Egami, head of the bank’s electronic commerce/electronic division.

While the current channel is mostly aimed at providing additional services to its existing clients, the new channel — set up either through a separate entity like the Sakura-Fujitsu joint venture or within the bank itself — would exclusively target the “Web-affluent” class, he said.

Web banking, whether it takes root here or not, will probably take on a Japanese character.

Although few specific projects seem to be in the works now, it may not be long before consumers start checking up on their account balance or transferring money to other accounts through everyday household appliances, say for example, refrigerators, microwaves, or washing machines, said Aiichiro Uchikomi of BTM’s retail banking division.

“Japanese people like that sort of stuff, don’t they?” Uchikomi grinned.

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