Published On: Tue, Feb 27th, 2018

DIGITAL INNOVATION, A NEW THREAT TO JAPANESE BANKS

DIGITAL INNOVATION, A NEW THREAT TO JAPANESE BANKS

“…Japan’s banks are experiencing a “quiet crisis”.

As consumer finance increasingly melds with mobile technology, digital banking (also referred to as e-banking or online banking) had immediately gained popularity for providing a hassle-free banking experience. These days, most customers use the Automated Teller Machine (ATM) for services such as updating passbook records; whilst mostly, choose to do their banking over the internet instead of going into the branch at all.

DIGITAL INNOVATION, A NEW THREAT TO JAPANESE BANKS

However, according to a Nikkei article, despite the popularity of digital banking; “the retail bank experience in Japan appears little changed from a decade or two ago.” Even if there is a less demand for a very time-consuming service of filling in various forms required for several bank transactions, “personal attention to the customer and a thick, sturdy passbook are still regarded as hallmarks” of quality banking in Japan. And although there are signs that they are beginning to adapt to certain changes, critics claim that they aren’t moving quite enough to face a wave of further technological disruption.

“Banking is not a complex business, particularly for retail. So, there is a lot of competition and it has become a commodity.”, Raymond Spenser, senior vice president at Moody’s Investors Service in Japan, said.

In 2016, Japanese banks’ return on assets was at 0.3% compared to those for the United Kingdom at 0.8%, Australia at 0.7%, and the United States at 1.0%.

Furthermore, besides sagging profits, KPMG (a global network of professional firms that provide Audit, Tax, and Advisory services) predicted that the future will soon be dominated by global technology companies leaving traditional banking (i.e., branches, sales force, and the back office) to disappear by the year 2030.

In addition, three Japanese banks were named by the International Monetary Fund that are likely to struggle to remain sufficiently profitable – Mizuho, Mitsubishi UFJ, and Sumitomo Mitsui.

“The transition would be painful and costly…”

And to make things worse, Alipay service – an affiliate of Chinese e-commerce giant Alibaba Group Holding, Ant Financial Services Group – had launched its mobile-phone payments service and is now eyeing to expand its network overseas like India, South Korea, Thailand, Indonesia, and the Philippines – leaving Japanese bankers threatened and in panic.

But the Japanese bankers are ready to prove their doubters wrong.

Mitsubishi UFJ Financial Group, for example, plans to slash the amount of labor equivalent to 9,500 from about 40,000 employees on its payroll – which is expected to be achieved in 2023. Moreover, 100 of its 516 of its retail branches are planned to be converted into automated branches where services are most likely to be provided through ATM’s and/or videophone.

Another banking group, Mizuho Financial Group announced a plan to eliminate 19,000 positions over the next 10 years and close 100 of its 500 branches and eventually convert them into smaller offices with fewer people.

But besides eliminating positions – stressing that new posts in the fields and new positions will be created despite the idea – the banks plan of introducing a digital currency in response to China’s threat.

J Coin, an electronic currency that could be used to pay for goods and for transferring money via smartphone, will be launched. It would be convertible into yen on a one-to-one basis and will be operated through smartphones and using QR codes.

Threatened by Alibaba’s Alipay service being launched in several cities in the country including Tokyo – which is quite expected as China has been Japan’s economic rival and over a number of issues including world war, Nanjing massacre, and territorial disputes – they plan to showcase the Japanese capabilities at the 2020 Tokyo Olympics when hundreds of thousands of tourists are expected to attend.

The new system, which is specifically designed to wean off Japanese people’s heavy dependence on cash, was privately estimated to add an extra ¥10 billion to the economy.

About the Author

- Paul Linus is an eminent online journalist who has been writing news, features and editorials on different websites from across the world for about a decade. He can be contacted at knowledgeherald@gmail.com

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