Retail banking activity in Japan is
high, with major changes taking place internally – such as the
development of Japan Post Bank and new consumer finance regulations
– coupled with growing external interest from foreign groups such
as Citi and ING, according to a new report from VRL

There is a sense that, at the moment, Japan is at the start of a
period of profound change in terms of its consumer banking market.
Could this represent a strong opportunity for non-Japanese banking
groups? Possibly – certainly the likes of Citi and ING think so –
though local players are also upping their game, especially in the
battle for fee income (it has been estimated that in 2005 major
banks in Japan only sourced 15 to 20 percent of their revenues from
fee-based operations. The corresponding figure for the US is
approximately 40 percent).

Retail banking has become big business in Japan after years of
being ignored. In fiscal 2006, it was estimated that only 10
percent of overall Japanese bank revenues were derived from retail

While not dismissing the potential of corporate sales, Japanese
banks have begun to recognise the power of the individual in
Japanese society, a relatively new phenomenon. Mitsubishi UFJ, the
country’s largest banking group, has stated that it wants group
revenue sourced from retail banking to grow to at least 30 percent
by the end of fiscal 2009 from 23 percent in fiscal 2006.

Huge barriers remain in Japan for all banks, foreign or not,
however, and the country differs from Western economies in some
substantial ways. Japan presents its own unique social aspects that
affect banking enterprises: for example, the lack of personal
cheque services; the reliance on cash as a payment method; the
saving habits of individuals within Japan; and the problems related
to personal names in Japan, which can lead to compliance, legal,
and even reputational issues in cases of identity theft.

One estimate, in June 2007, concluded that ¥27.7 trillion ($277
billion) was stashed away nationwide as undeclared cash, equating
to about quarter of a million yen for every man, woman and child in

Reasons given for the attractiveness of such a saving method were
the sudden realisation that Japanese banks could, in fact, fail
(after years of convoy protection by the central bureaucracy); the
very low interest rate (as little as 0.02 percent, with even
10-year rates being as low as 0.25 percent), making it unattractive
to consider putting money in a bank account; and comparatively high
ATM fees.


Deferred debit card

And although credit cards are widely issued in Japan, their usage
pattern differs somewhat from that in the West, with credit cards
being widely used as a kind of deferred debit card, and banks
planning to issue credit cards as part of their customer services
should make themselves aware of this aspect of Japanese financial

In addition, customer service from Japanese banks is often
radically different from that provided by Western banks. Customers
are encouraged to take a number and wait to be called to a teller

Because of the segregation of functions (tellers are not ‘general
purpose’) it may end up being necessary to change tellers in the
course of one visit to the bank, necessitating two (or even more)
separate queue numbering systems.

Once the customer actually arrives at the teller’s window, service
tends to be more deliberated than in a Western bank. Checks and
counterchecks of transactions by branch management are a common
part of customer transactions, often legally mandated, and what may
be considered a simple transaction in Western banks may take many
times longer to execute in a Japanese bank.

Setting up an account may take some time and effort. Traditionally
two or three weeks elapsed between the application for an account
and the arrival of a bank card. There are now exceptions to this,
and a few banks, following the lead originally set by Shinsei Bank,
provide the customer with the bank card at the time the application
is made.


Sober and serious branches

Privacy in the Western sense is not always a characteristic of
Japanese institutions and Japanese banks might not provide the
level of privacy that might be expected by Westerners. With a few
exceptions, Japanese branches present sober and serious rather than
exciting customer experiences.

The new regional flagship branch of one of Japan’s largest banks
was described by the representative of an international company
specialising in the design of retail bank interiors as “like an
airport waiting lounge – but not as friendly”. Typically, older
bank branches present a somewhat utilitarian face to the customer,
enlivened a little by TV sets showing soap operas or sporting
events (usually not advertisements for the bank’s products).

There are exceptions to this. Shinsei calls its branches ‘financial
centres’ and deliberately eschews bright lights and sharp edges in
favour of curves, pastels and soft furnishings. Another exception
is Tokyo Star Bank, a Tokyo-based but nationally focused bank with
around $17 billion in assets. The organisation has taken a
different tack to that of Shinsei, branding itself in bright
orange, with a more angular high-tech feel to it than the hotel
lobby-style atmosphere of Shinsei. The bright orange of Tokyo Star
adds a splash of colour to the muted Tokyo urban landscape.

It is perhaps not a coincidence that the two banks – which both
have non-domestic management – are the ones that stand out from the
crowd along the streets of Japanese cities.



The four megabanks

Following a series of mergers at the turn of the millennium, four
megabanks emerged (Mitsubishi UFJ, Mizuho, Sumitomo Mitsui and
Resona) and, with the subsequent required rebranding, the
consolidated entities have had an opportunity to promote their
identity with far more certainty than was previously the case. The
Tokyo-Mitsubishi UFJ red, Sumitomo Mitsui’s green and Mizuho’s blue
are now easily recognised on main streets in towns throughout

It is hard, however, to make significant distinctions between the
big four in terms of services offered, or the way in which they are
presented. Some regional banks, such as Yokohama Bank (the largest
of the regional banks) have also been through a rebranding of their
image, but in some cases this seems to consist primarily of a
change to the logo and sign outside the door, with relatively
little change to the interior of the bank or a re-thinking of the
customer-bank relationship.

Loyalty cards and programmes are extremely popular in Japan, but
their use within retail banking is a fairly new phenomenon. Mizuho
has introduced a ‘Mileage Club’. Members accumulate points for
their use of Mizuho services, including making deposits. There are
tie-ups with other entities for Mizuho: electronic retailers
(Yamada Denki), petrol station chains (Jomo, Eneos), hotel groups
(Prince), and airlines (ANA) among others, whereby extra points can
be accumulated when payment is made to these partners using Mizuho

Other banks also operate point systems, with different services
used by the customer earning differing numbers of points. In the
case of the Bank of Yokohama, these points are accumulated over the
course of a year, and qualify for a cashback payment in April each