7-Eleven Takes on Japan's Banks

Back to Contents of Issue: February 2000

by Aaron Cohen

As if Japanese banks don't have enough problems with restructuring, mergers, and realignment in many financial subsectors, they now face a head-on challenge from convenience stores. The ubiquitous "convenies," which already accept payment for utility and phone bills and sell basic automobile insurance, are moving quickly to exploit their thousands of outlets and information systems. As such, they constitute a real threat to one of Japan's most managerially conservative industries.

Payment for purchases made via the Internet is the latest move to increase over-the-counter financial services at the same place many Japanese pick up noodles, snacks, and cooked-on-the-spot meals.

Ito-Yokado, the company that owns the 7-Eleven chain, is the primary culprit here. It made its first significant move when it joined -- and then bolted from -- a takeover of the failed Nippon Credit Bank in November. The group behind the takeover was led by Softbank and included Orix and Tokio Marine & Fire (see "Softbank Empire-Building in Bid for Bank" . But Ito-Yokado pulled out and days later announced it would seek a banking license on its own.

The plan: Use its existing information system and install ATMs in its 9,300 24-hour 7-Eleven stores. That's way more ATMs than any postmerger Japanese megabank will have. The retailer's strategy calls for only handling deposits and transfers, not supplying credit for business customers. Banks are hungry for fee business, and would be chin-high in chagrin if an upstart took some of that away.

For Ito-Yokado, pushing services like banking -- instead of physical goods like groceries -- makes a lot of sense. The advantages include traffic building, no inventory, no delivery, and differentiation from smaller competitors. Ito-Yokado already collects payments for telephone and other bills to the extent of 70 million cases a year, accepting ¥500 billion in cash. The sheer scale of the company's chain network and the 24-hour services offered are ominous matters for Japan's banks. Ito-Yokado intends to handle 16 million transactions a year by 2003, taking in about ¥100 billion in the process. Partners on the project include Microsoft, NEC, Fujitsu, Nomura Research Institute, and Hewlett-Packard.

The company also expects new business from people who order products over the Net but do not have credit cards. After a customer places an order on a partnering site and confirms that the method of payment will be through 7-Eleven, the online retailer sends purchase information to the 7-Eleven server, which then displays a bill on the shopper's screen. This is printed by the shopper, and payment is made at a store.

For Internet shops, the need for collection procedures is eliminated. Moreover, arrangements can be made so that products are shipped on either receipt of the order or receipt of the payment. Customer transaction fees, which are deducted when 7-Eleven transfers the money, vary according to the value of the purchase. The minimum charge is ¥120 and the maximum is ¥500.

Outlets using the service pay a startup fee of ¥50,000 and a monthly fee of ¥5,000 to ¥12,500, depending on how frequently they want 7-Eleven to transfer payments -- the retailer offers to close accounts and make payments at any of several frequencies, but not shorter than five days.

This is important. A key to earnings in the convenience-store business is that money is received from customers -- all cash -- well ahead of payment dates to suppliers. That is, JIT (just in time) delivery, tight inventory control using POS (point of sale) systems, and good inventory management based on quantitative information make it possible to collect for goods sold long before the goods are paid for.

So far, eight online retailers have signed up for the program, including BIGLOBE, So-net, @nifty, curio-city, and Sofmap. In principle, Net shops overseas could participate as well.

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