Megabanks start to feel the heat from upstarts

November 11th, 2014 by Philip Brasor & Masako Tsubuku

Shop 'n' save: Taking applications for Aeon credit cards and Aeon Bank accounts

Shop ‘n’ save: Taking applications for Aeon credit cards and Aeon Bank accounts

With the coming sale of the retail banking operations of Citibank in Japan, many of the bank’s customers here are looking for an alternative, especially if those customers want to transfer money to and from overseas. Japanese banks tend to be disappointing when it comes to this type of service, but they are also becoming less appealing in terms of other matters most people used to take for granted.

For instance, we have done most of our banking with the Bank of Tokyo Mitsubishi UFJ for many years, but since we moved out of Tokyo we’ve had to carry out local transactions at convenience stores because there are no MUFG branches or ATMs anywhere near our home, even though we live in a populous and growing suburb of Tokyo.

So we’ve been looking to change banks, and have found that new financial services provided by retailers and IT-related firms are more attractive than what’s available from so-called mega-banks. A recent article in the Asahi Shimbun described how the retail giant Aeon has been signing up new customers for its banking business by offering services that regular banks can’t . . . or won’t.

The article explains how more and more of the 50 million people who visit the Aeon Lake Town Mall in Koshigaya, Saitama Prefecture, every year are not only signing up for Aeon’s credit cards, but transferring their savings and other financial dealings to Aeon’s bank. The mall contains some 700 shops and restaurants, all of which take the card. Users earn redeemable points, and while most credit cards also have point systems that allow users to trade them in for good and services down the road, Aeon card users also qualify for immediate discounts within the mall.

At the Aeon supermarket, about 60 percent of all purchases are made with either the card or Aeon’s e-money system WAON. Aeon cards can even be used as Suica cards for public transportation with a quickly approved application. But the best thing about Aeon plastic is that, unlike conventional credit cards issued by conventional banks, there are no yearly fees.

Aeon’s aim is simple: to “corral,” as Asahi puts it, as many customers as possible for its new banking services. When an Aeon credit card is used, the money that’s spent can be directly withdrawn from an Aeon bank account. Moreover, bank customers can use the card and the bank account to pay bills to utilities and other retailers outside the Aeon system. They can also make remittances just as they do in a bank, and they can do it 24 hours a day, since the ATMs are open all the time and they can also bank over the Internet. Moreover, Aeon launched a housing loan service with a variable interest rate that starts at 0.57 percent, which is almost a full percentage point lower than most bank rates.

Asahi interviewed an Aeon customer who recently had his housing loan transferred from a major bank to Aeon’s, and not just because of the lower interest rate. When he opened an account so that the loan payments could be withdrawn from his balance every month, he became eligible for a 5 percent discount on anything he buys at Aeon or related stores for the next five years. And that’s on top of the point system and discounts his Aeon credit card gives him.

Japan’s biggest Internet mall, Rakuten, has a similar scheme. The advantage of shopping through Rakuten is its generous point system, which can be used for future purchases. Rakuten’s bank allows the company to basically recirculate money throughout its various company functions, since customers who have accounts with the bank just transfer money out of their account when they buy something. And like Aeon, Rakuten’s bank allows customers to pay bills any time of the day or night over the Internet.

Retailers who sell through Rakuten are encouraged to set up accounts as well, because member companies can receive up to ¥30 million in financing. Rakuten also operates the e-money system Edy, which can be used at brick-and-mortar stores, thus extending the company’s reach beyond cyberspace.

The upshot is that more consumers are finding they don’t need banks at all. According to Nomura Research, “contact points” between major banks and their customers — meaning branches and ATMs — are becoming fewer due to rationalization, so people are open to these new retail and IT banks, which actually require less contact. As a Nomura official told Asahi, big banks “have no idea what people want” any more. More significantly, banks cannot “participate in the kind of new businesses” that Rakuten and Aeon, with their enormous and varied customer databases, enjoy.

At a press conference on Oct. 16, the chairman of the Japan Bankers Association specifically mentioned Rakuten in what Asahi described as “a fearful voice.” As it stands, the association’s only response is a proposal to extend hours for remittances by one hour a day. Right now you can only remit funds from 9 a.m. to 3 p.m. at most banks. There’s also a movement to allow money transfers on the weekends, but it won’t be until the end of the year that any sort of decision will be made.

The problem is that there are too many small banks that can’t afford the technological and administrative costs involved with extending hours and expanding services. As one business school professor told the Asahi, individual payment systems like PayPal are making a lot of banks obsolete. It’s only a matter of time before services like Google Wallet and Apple Pay become available to people in Japan. And what about Alibaba, China’s biggest Internet company? Some 300 million Chinese already use AliPay, a direct payment system that can be used for anything, including taxi rides, plane tickets, and cell phone payments.

Until now, the only appeal that megabanks held for the average consumer was security, since most Japanese are still hesitant about investing, but for the last 20 years that hesitancy came at a price, so to speak: interest on savings that hovered around 0.025 percent. Aeon Bank’s time deposits are now around 0.3 percent, a full decimal place higher. The choice seems obvious.

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5 Responses

  1. I really like Shinsei. I’ve been a customer for quite a long time now, and while their offerings have become slightly less generous over the years, they still provide a great service online in English and Japanese.

    I use Rakuten Securities to buy shares, and find them great too.

    The contrast with our local bank, 77 Bank in Sendai, could not be more stark 😉

  2. I’ve personally opened accounts with Jibun Bank, Aeon and Rakuten. At first glance, a lot of these net banks look very attractive and offer some innovative services. For me, the biggest issue with these banks is that because they don’t register a hanko or a signature, it’s very difficult (and in some cases, impossible) to organize direct billing (kouza furikae) for credit card accounts or some utilities. For example, while you can hook up an Aeon, Saison or Epos credit card account to your Aeon Bank account, you can’t do the same with your American Express card.

    What I ended up doing was having 2 main bank accounts – one at a traditional bank to pay for my credit card accounts, and one at Aeon Bank for my savings.

  3. Hello! thanks for the article, it was very interesting as always.
    Have you tried Japan Post bank?

  4. Good morning,

    a report was sent to me that the priorities of deposit guarantees were quite drastically changed at the Nov 16th meeting in Brisbane.

    Do you know (or where else can find the answer?), has the usual deposit guarantee of a Yen 10.000.000 cash deposit in Japanese banks remained unchanged?
    I could not find any information anywhere other than from 2009….

    Thank You, TM

  5. The same information can also be found here


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