The battleground for retail banking will shift to convenience stores Monday when Ito-Yokado Co.’s IY Bank opens on a vast network of ATMs at Seven-Eleven stores nationwide.

With its operations based almost entirely on automated teller machines, IY Bank will offer customers 24-hour access to banking services year-round at the 3,650 outlets run by the leading convenience store chain, owned by Ito-Yokado, and at Ito-Yokado supermarkets.

Unlike conventional banks, whose earnings center on interest charged on loans, IY Bank aims to rely solely on fee-based income from its customers and from its partner banks — Sanwa Bank, Asahi Bank, Sumitomo Mitsui Banking Corp. and Bank of Tokyo-Mitsubishi.

On Monday, IY Bank will begin accepting applications for accounts, with ATM service planned to open May 15.

IY bank, 51 percent owned by Ito-Yokado and 49 percent by Seven-Eleven Japan, was initially capitalized at 20.2 billion yen but plans to boost its capital to 60 billion yen by the end of March 2002. In five years it hopes to expand its network to 7,150 ATMs.

“IY Bank will be an enormous network,” IY Bank President Takashi Anzai told a news conference Tuesday. “Our range of operations completely overlaps with customers’ daily lifestyles.”

Anzai said the bank aims to achieve profitability in its second business year. But with both banks and their customers extremely sensitive to service charges, the road to profitability might be a long one.

Intense competition

IY Bank hopes to have settlement capabilities for regional banks, securities firms, credit card and insurance companies in the future, where competition will arise from convenience store ventures established by conventional banks.

E-Net Co., a joint ATM operator funded by Mitsubishi Tokyo Financial Group, Sumitomo Mitsui Banking Corp., Fuji Bank, Sanwa Bank and 32 regional banks, operates 1,400 ATMs at nine convenience store chains in 18 prefectures. E-Net plans to set up ATMs at 3,000 Lawson stores by autumn 2002, mainly in the Tokyo and Osaka areas, increasing the number to 4,000 by 2003.

Two other convenience store chains, FamilyMart and Circle K, have also tied up and aim to increase their combined number of ATM-accessible outlets to 5,000 by the summer.

About one-third of the nation’s 37,000 convenience stores are expected to install ATMs by summer, and the number of units could balloon to as many as 20,000 by 2006, according to some estimates.

Complaints show promise

Potential demand for convenience store banking is huge. Their round-the-clock services address customer complaints about traditionally high service fees, poor teller service and limited ATM hours.

A survey conducted in December by the Japanese Bankers Association found that 43.1 percent of those polled said they were dissatisfied with the fees banks charge for money transfers, while 45.1 percent said they were dissatisfied by their attitude toward customers.

Another 22.5 percent said ATM fees for after-hours use are too high, while 18.4 percent disliked the unavailability of ATMs on weekends.

While city banks have tried to address this demand by installing 24-hour ATMs, the high cost of replenishing cash and providing security has kept their numbers limited.

The Mizuho Financial Group, for example, has roughly 1,400 branches in Tokyo, Chiba, Kanagawa and Saitama prefectures, but only 22 offer round-the-clock ATM services. Seven-Eleven will operate ATMs at 3,200 outlets.

Ito-Yokado President Toshifumi Suzuki compared the IY Bank endeavor to the start of the Seven-Eleven convenience store chain in 1974.

“When I started Seven-Eleven (Japan) 27 years ago, everyone said that with supermarkets already on the scene, it wouldn’t be profitable,” Suzuki said.

Both Suzuki and Anzai declined to disclose an earnings target. But Anzai said the focus will be on the customer.

“With the costs clear; earnings will simply be about how we succeed in securing customers,” Anzai said.

The bank hopes to reel in some of the estimated 10 million customers who go to its Seven-Elevens, supermarkets, and other Ito-Yokado affiliates, he said.

Anzai also said that accounts are more important than deposit volume.

“I don’t intend to collect enough deposit volume to worry about how to invest it,” he said.

High interest in no interest

Suzuki claims that IY Bank and those that choose to use Seven-Eleven will have an advantage over those who pick other convenience stores.

With interest rates at record lows — three-year term deposits earn a typical 0.05 percent in interest — customers will pay more attention to service fees, said Ayako Kato, financial planner and president of A’Terre Creative House, who holds seminars on household budget planning.

A 210 yen service fee annihilates the interest earned on a 1-year term deposit of 420,000 yen earning 0.05 percent. With prices falling, the same 210 yen can buy more, such as two rice balls at a convenience store, she said.

“It pays more to take the time to compare service fees, interest rates and special services banks,” Kato said.

Bank customers are taking a closer look at preferential perks to frequent customers, Kato said. They will be watching the development of IY Bank’s future partnerships to see how many places they can use IY debit cards and credit cards, she said.

The ease of using IY Bank’s Internet banking services, which start in October, will also be a factor, she said.

While other banks are reducing their branch networks and making the most of ATMs at convenience stores, IY Bank aims to stay one step ahead by providing night-deposit services for small and midsize storekeepers, he said.

Employees at smaller shops in some areas of regional cities have to drive out of their way to make night deposits at banks because branches nearby are already closed. IY Bank plans to accept the money through its ATMs and remit them to the proper bank.

“Our ultimate aim is to make the Japanese financial system more efficient,” he said. “More competition will help us achieve this.”

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