Posts Tagged ‘Japanese banks’

Western Union charges into the money transfer breach

Friday, February 25th, 2011

A year ago, a new shikin kessai-ho (funds settlement law) went into effect with regard to foreign currency exchange, and as a result it is now legal for almost any financial institution to offer overseas money transfer services. Previously, in Japan only Japanese banks could offer this service, and anyone who has tried to wire money overseas through a bank will understand why a new law was needed. Besides charging sizable handling fees (tesuryo) for sending the money on top of an exchange fee, banks seem to take forever to make it happen.

Make that to go: Travelex window in Ueno Station

Western Union, the legendary telegraph company that provides international money transfer services in 240 countries, applied in Japan last July for permission to provide overseas remittances. The company presently commands an 8 percent share of the money transfer business in Asia, and its revenues have been decreasing every year since 2006, so Japan is seen as a vital opportunity. The service would specifically target foreign workers who regularly sent money back to their home countries, a market that will only grow as Japan inevitably allows more foreigners to work here and which Japanese banks have mostly ignored, at least until now.

Many foreign workers in the past used non-profit organizations whose intentions were above-board but which nevertheless operated in a legal gray area. Japanese banks tend to charge at least ¥4,000 to remit funds overseas, no matter how small, which is OK if you’re sending money once a year, but many foreign workers send money once a month. And since the bank is usually sending the funds to an unaffiliated financial institution, that institution charges the Japanese bank a fee, too, which the sender usually has to pay. With Western Union, it’s the same company on both ends of the transaction, so there’s only one fee.

WU has hooked up with the British currency exchange service Travelex, which already has outlets in six prefectures. Fees range from ¥990 for sums under ¥10,000 to ¥12,000 for remittances between ¥500,001 and ¥700,000, which is the maximum amount that WU Japan will transfer per transaction. (According to the Funds Settlement Law, you still need to use a bank to transfer funds of more than ¥1 million.) Better yet, the transfer is instantaneous, while it normally takes a bank several days to send your money. The Asahi Shimbun has already reported on how popular the service is among foreign workers and students in Japan.

Naturally, other companies are now entering the ring. Japan Travel Bureau and the SBI Group have started overseas remittance services that are actually slightly cheaper than WU’s: ¥880 for amounts of less than ¥30,000. Until the end of March, SBI even offers a special low fee of ¥1,980 for remittances over ¥250,000. Services other than Western Union’s, however, usually charge different fees depending on the country of destination. In addition, Rakuten Bank has also started a remittance service in January with Travelex, but only for businesses. Seven Bank, the ATM banking service connected to 7-11, has partnered with Western Union and this summer will begin offering money transfer services overseas through its system of 14,000 ATMs. SBI will offer a similar service through ATMs in Family Marts and branches of Japan Post’s Yucho Bank. Though they’ve been slow to acknowledge the new competition, Japanese banks are starting to stir. In November, Sumitomo Mitsui Bank started offering a 24-hour money transfer service over the Internet whose fees are ¥500 less than what they are if you make the transfer at a branch office. All transactions made through ATMs or over the Internet require pre-registration and documentation of email addresses and identification.

No need to feel sorry for the Incubator babies

Friday, September 24th, 2010

That's all, folks!

That’s all, folks!

When Nihon Shinko Ginko filed for bankruptcy on Sept. 10 the media reacted predictably with alarm. Any bank that fails is bound to send shivers through the population, even those who don’t have accounts with the institution in question. Incubator Bank of Japan, as it’s called in English, had debts that exceeded its assets by more than ¥180 billion, incurred through making loans to small businesses. Exactly 126,779 people had time deposits in the bank.

What makes the story especially notable is that this is the first instance of a bank failure in which the government will limit “payoffs” (deposit guarantees) to ¥10 million per account (plus interest earned) since the deposit guarantee program was begun in 1971. Between 1996 and 2005, the cap was suspended to prevent runs on banks that were hard hit by the post-bubble recession. The cap was reinstated as part of the financial reforms undertaken by former prime minister Junichiro Koizumi (Incubator, in fact, was started in 2004 by Takeshi Kimura, a pal of Koizumi’s financial services minister, Heizo Takenaka). For Incubator customers with more than ¥10 million in their accounts, there is no guarantee they will get it all back.

As it turns out, only 3,423 of Incubator’s depositors had more than that amount, and their total at-risk deposits — meaning the money in excess of the ¥10 million limit — only came to ¥11 billion of the total ¥582 billion in time deposits. The reason for this low amount is simple: Incubator took advantage of the payoff system by telling potential customers that there was no risk if they deposited less than ¥10 million, and then offered much higher interest on time deposits than any other bank, a cool 1.9 percent for five-year accounts. Consequently, they got lots of customers. They could offer this high rate because they do not offer regular savings accounts, which require lots of resources and personnel to maintain.

And the rest of the banks, or, more precisely, those banks’ depositors, provided the refunds to the Incubator depositors. Every bank has to pay the Deposit Insurance Corp. of Japan 0.084 percent of its total deposits as insurance premiums. And if that amount isn’t enough to do the job when the occasion arises, the government will step in with tax money.

But it sounds as if they aren’t going to need all that money anyway. On the first day refunds were made available, only ¥5 billion was removed, equivalent to 0.9 percent of the relevant deposits. One week later, the total amount so far taken out was only ¥29 billion. Apparently, most of the depositors who showed up to claim their money changed their mind once things were explained to them. While the DIC sorted out the bank’s affairs, time deposits would continue to accrue their 1.9 percent annual interest for up to eight months, at which point it is projected that a “reconstruction sponsor,” or replacement bank, will step in to take over these accounts. Then, most likely, the interest rates will drop to whatever that bank offers. But in any case, there’s no danger of losing money or interest, so depositors might as well keep their money there. In a sense, it’s important that they do, since the more money that’s taken out of Incubator, the more difficult it will be to find a replacement bank. If you do take your money out and the account has not reached its five-year maturity, your interest rate will drop to a fraction of the original 1.9 percent rate.

If the Incubator bankruptcy isn’t as dire as it was reported to be, it does, however, provide a modest illustration to average people of what “high risk-high return” means, and thus may have an even more flattening effect on investments. The amount of household assets that are now in cash and savings is ¥806 trillion, the highest it’s been since 1997. Japanese people are already afraid wary of stocks, mutual funds and other investment instruments, and the Incubator story isn’t going to make them any more willing to try something new. The people who put their money into Incubator are considered, relative to the average Japanese consumer, risky investors, which is why it is so easy to talk them into keeping their money there even as the media continues to report on its insolvency. The vast majority of Japanese put their money in the bank, even if it just sits there doing nothing.


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