Sakura, Fujitsu Move Virtual Banking Ahead

Back to Contents of Issue: January 2000

by Yaeko Mitsumori

The country is holding its breath for the birth of Japan's first virtual bank, scheduled to take place in 2000, with Sakura Bank and Fujitsu Ltd. as the proud parents (see JI, November 1999).

While the operation system and service menus have yet to be clearly defined, the virtual bank will enable Internet users to check their bank account balance, transfer money, and open either an ordinary or time deposit. Figures show that more than 10 million U.S. households are using virtual banks, and Japanese banks are in step with the country's recent Internet boom, launching Net banking services in city and regional banks as well as credit associations.

The Sakura-Fujitsu virtual bank is capitalized at ¥20 billion and will begin operations with around 20 employees. Sakura Bank holds a 90% stake, and Fujitsu 10%. Due to a recent merger agreement between Sakura Bank and Sumitomo Bank, Sumitomo will also hold certain shares in the virtual bank.

Offering a variety of bank services, with lower charges and higher interest rates compared with both conventional and Net banks, this virtual bank newcomer should be a welcome addition to an otherwise high-cost, slow-service industry. Initially targeting the now 3.5 million subscribers of @nifty, the largest ISP in Japan run by Fujitsu, the virtual bank plans to offer services to nonsubscribers as well. Fujitsu projects an increase in the number of @nifty subscribers to 10 million within five years.

Sakura Bank and Fujitsu will obtain a license for the virtual bank from the Financial Supervisory Agency, with plans to launch banking services in the summer of 2000 at the latest. Plans also include joining the Deposit Insurance Corporation and the Federation of Bankers Associations of Japan.

Sakura Bank has not yet announced transaction fees and interest rates; however, the bank has indicated that their offerings will be better than conventional banks because of the elimination of the usual face-to-face services. This should result in significant savings, which will be used to attract more customers.

According to Sakura and Fujitsu, the virtual bank's break-even point is ¥100 billion in deposits. Their target is to win 1 million bank accounts and ¥1 trillion in savings in three years.

With no physical offices and no direct contact with customers, virtual banks must compensate for the decrease in sales opportunities by lowering transaction fees and offering higher interest rates. As a result, even if they successfully attract more customers, their profits tend to remain low. Some market watchers say that because the Net banking market in Japan is so small, Sakura and Fujitsu will have a hard time recouping their ¥20 billion capital investment.

A merger with Sumitomo Bank's WEB Direct is also in the works, but several regulatory hurdles need to be cleared before the virtual bank can take off. The banking law states that banks must maintain physical offices where business is carried out face-to-face, a hold-over from the pre-Internet era. In order to comply, Asaba said that a head office will be set up, where customers may "drop in."

In September 1999, the Financial Supervisory Agency established a study group, consisting of intellectuals and business people, to deal with the issue of such an antiquated law. The group's final report on the matter is expected in the spring of 2000. If they find it necessary to revise the current law, they will have to submit a revised bill to the Diet, but it is unlikely that the submission will be in time for the next regular session of the Diet, which starts in January 2000.

According to a survey conducted by Asahi Advertising Inc., 77.1% of those surveyed said that they had heard about Net banking services. A mere 6.4%, however, replied that they had used the service. The highest hurdle for them seemed to be security, with 90.7% indicating their concern about the safety of Net banking. The survey concluded that allaying users' fears would be one way to increase the use of Net banking services.

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