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Japan’s Big Banks in Trouble

July 18, 2000

TOKYO (AP) _ Japan’s big banks are in big trouble. Newcomers with names that don’t sound anything like the banks of old _ Sony Corp., Softbank Corp., Nippon Telegraph and Telephone, among others _ are offering or planning financial services.

It’s already possible to pay bills through cell phones that connect to the Internet and withdraw cash at automatic teller machines set up at some convenience stores.

Soon, more and more Japanese may be using new types of bank accounts to pay for music and games downloaded on Sony video-game machines or to order groceries through Toyota Motor Corp.’s Web site, gazoo.com.

The shakeup in banking is part of ongoing larger reforms in Japan’s financial industry that are easing regulations and freeing up competition.

The changes are also paving the way for the entry of businesses from outside the traditional banking sector. More significantly, they represent the failure of old-guard banks to keep up with emerging retail needs.

``Outsiders going into retail banking is the talk of the town now,″ said Kazuo Ogawa, professor of economics at Osaka University. ``Old-style banks failed to keep up with the changes among the younger crowd.″

Over the decades of dramatic economic development following World War II, banks were powerful, thriving on its close ties with corporations and the government. They kept their eyes on big companies and big bureaucracy, rather than the individual saver.

But banks landed in hot water with the burst of the ``bubble economy,″ the speculative lending of the 1980s. Top banks are still saddled with mountains of bad debt totaling nearly $278 billion, according to government figures.

Today, banks have been forced to cut costs and resort to a series of mergers.

Dai-Ichi Kangyo Bank, Fuji Bank and the Industrial Bank of Japan are getting together. So are Sumitomo and Sakura banks. Sanwa and Tokai are planning an alliance with Toyo Trust and Banking Co.

Analysts say size by itself is not a solution to banks’ woes. But pooling resources is expected to be a plus in the battle to offer new services, especially online banking.

``Before, we just had our branch outlets and the customers came to us,″ said Ryoko Shiotani, an official at Sakura Bank, which has set up about 1,000 automatic teller machines at convenience stores. ``Now, we need new channels to reach out to our customers.″

Sakura is among the top banks signed with NTT DoCoMo’s ``i-mode,″ which offers Internet access, including simple retail banking services.

With a push of a few buttons on their cell phones, people can make bank transfers or find out how much money is in their accounts.

I-mode now has 9 million users, although many use it for e-mail, weather forecasts and other information, rather than for banking.

Ito-Yokado Co., which runs the Seven-Eleven convenience store chain with 8,000 outlets nationwide, has ambitious plans to go into banking by setting up automatic teller machines in their shops.

Twenty-four hour banking is attractive to Japanese because banks here close at 3 p.m. and most ATMs aren’t open after about 5 p.m.

``Our aim is to offer this great convenience to our customers,″ said Ito-Yokado spokesman Yoshinobu Naito.

Other companies are also jumping into finance.

Trading house giant Itochu Corp. is among a group of companies applying for a banking license for online banking called ebank, set to open next year. The accounts will be limited to $460 for small transactions, such as electronic shopping.

Internet giant Softbank leads a consortium that has won approval to buy failed Nippon Credit Bank _ a move expected to give Softbank an edge in the online banking market.

Sony Corp. began applying for a banking license in March in an alliance with Sakura Bank and U.S. investment bank J.P. Morgan and Co.

Once that gets off the ground, people will likely be making payments through Sony’s PlayStation 2 video-game machine, which can link with the Internet.

Japanese electronic giant NEC Corp. is helping French financial group Societe Generale set up an online trading service for Japanese investors called SG Online.

And Secom Co., a Tokyo security-alarm company, is taking advantage of the computer monitors it has set up at homes to deal with emergencies to offer Internet banking.


On the Net:

Sakura Bank: http://www.sakura.co.jp/bank/index-e.htm

Seven-Eleven Japan: http://info.sej.co.jp/contents_e/index.html

NTT DoCoMo: http://www.nttdocomo.com

Sony Corp.: http://www.sony.com

Softbank Corp.: http://www.softbank.co.jp/e_top.htm

NEC Corp.: http://www.nec-global.com

Secom Co.: http://www.secom.co.jp/index-e.html

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