Digital Banking? The Jury’s Still Out in Japan

  • Pablo Lacruz, Business Development Manager EMEA at Strands

  • 29.03.2017 09:45 am
  • digital banking , Pablo Lacruz is Strands Area Manager and the person responsible of the regional development of Strands in the United Kingdom, Ireland, Russia, Nordics & Baltics countries. Within the last 5 years he has been strongly involved in the Fintech European ecosystem from both the financial and the technological side.

The Japanese culture is a combination of traditional and modern like few others. When you think of Japan, it would be normal to associate their culture with digital technology, mobile phones and virtual reality, but when it comes to banking, the old system remains firmly rooted to its analogue ways.

Walk into any branch of a bank in Japan and it is a thing of luxury; all the personalized assistance, glamourous lobbies and plush furnishings you could imagine.  All for a simple bill payment or money transfer at the cashpoint. So why go to such lengths when the global future of banking is proven to be so clearly digital?

As it stands, less than 20% of the Japanese population use digital banking services, and for a small country, Japan has what could be considered too many banks for the number of users; a branch on every corner and as a result, there is no inconvenience associated with going to the bank to carry out daily transactions.  

People in Japan trust their banks implicitly, often holding between 3 and 5 different bank accounts, and as such traditional banks are reluctant to change the status quo.  A case of “if it isn’t broken, don’t fix it”.  Can they afford to remain in this offline, transaction-only existence simply because their clients have an overtly analogue mindset, or is it time to force them get up to speed, in keeping with the rest of the world?

It seems clear that it is precisely this that worries banks of this kind:  too much world to be discovered, so by remaining firmly un-digital, they remove the risk of customers being tempted by the competition.  The prettier the bank’s facilities, the more attentive the staff, the lower the chances their clients will jump ship?

Kazuya Sakakibara, Executive Officer of IT Strategy and Product Development at Jibun Bank, the only Japanese mobile-first bank in Japan, says:

It will take some 5 - 10 years to see real change in the Japanese market.  We can’t change the habits of the older population, and so-called millennials are earning more and are increasingly mobile, so a move in the right direction is imminent. At Jibun Bank, we believe the future is digital and our focus is firmly placed on proving that there is a modern side to banking that is designed to offer a personalized service online, without the need to eliminate the conversation and essential element of trust”

The vast majority of Japanese people are cash users.  This, coupled with the fact that almost half of all shops and establishments do not provide customers with the facilities with which to pay by any other means, makes progress complicated, especially considering ATM machines are not open 24 hours.  Is this system really as easy as all that for the average Japanese person, or is it more a case of old habits die hard?  

With cash transactions comes an almost impossible obstacle; a lack of data about how customers spend their money.  Debit cards are rare in Japan and information about credit card spending is not currently being used to better understand customer behaviour.Banks like Jibun Bank have gone round the issue by setting up Machine Learning and Analytics teams and establishing contracts with credit providers directly. Their parent company, the Japanese telecom company KDDI Corporation launched their new au Wallet service in May 2014, enabling customers to carry out transactions electronically, check their balance and top up via the application.

With the remaining 80% of the population still ripe for the picking by digitalized banking services, surely the race is now on for banks to be the main platform on which to aggregate user’s other bank accounts?

Jibun Bank is the first mobile-centric bank in a traditional Japan, and as such, a ground-breaker in this country, as it has no physical branches or cashiers to speak of.  All transactions traditionally carried out at the bank can now be done via their online application.

Though they are fully aware of the challenges this new system poses, they are focused on improving communication with their clients, albeit through virtual technology or chatbots. The move from transactional banking to relationship banking is underway, but thanks to banks like Jibun, the relationship is revolutionizing a stagnant system.

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