In its first year of offering 24-hour ATM banking at convenience stores, Ito-Yokado Co.’s fledgling IY Bank reported a 12.18 billion yen after-tax loss in fiscal 2001.

Customer use of its ATMs did not reach its expectations. But smaller-than-planned capital investments, due to delays in software development and slow tieups with major banks, helped reduce the loss from the 13.2 billion yen it projected in November, according to President Takashi Anzai.

The bank expects to reach into the black in fiscal 2003, after bringing its losses to 6 billion yen for the current fiscal year, he said.

“We’ve set up the minimum infrastructure necessary this year,” Anzai said. “It’s an uphill battle because we’re trying to get a piece of the financial pie. But customer demand is there, and we are going to create more demand.”

Based almost entirely at some 3,690 ATMs installed in convenience stores that are open 24 hours a day all year round, IY Bank’s profits come mainly from fees paid by depositors when they use the machines to transfer funds. So far, the bank has tied up with seven others and two securities firms, and it also collects fees when their depositors use IY ATMs to withdraw cash.

IY Bank was launched last year, seeking a foothold in a banking sector infamous for its neglect of retail banking. Together with Internet-based Sony Bank, their launch was spotlighted by the media as the first entries into the banking industry by nonfinancial firms.

IY Bank’s success could hinge on further branch closures by the major banks and on IY’s ability to gain customer trust.

“Humans and machines are not infallible,” Anzai said. “We are constantly on our toes to make sure we don’t damage our credibility. We’re building trust from the ground up here.”

And that could be an advantage, considering the problems some of the country’s established banks are having. Financial regulators are conducting on-site inspections at the nation’s largest banking group, Mizuho Holdings Inc., after a series of embarrassing glitches that caused ATM failures nationwide and hundreds of millions of transaction delays.

IY Bank projects it will add 1,500 more ATMs to its network during the current fiscal year and will try to raise the average number of daily transactions at each machine from the current 40 to 70.

It plans to further expand services to allow customers to make credit card and phone bill payments at its ATMs and will consider options to finance consumer loans.

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