Melanie C. Redmond explains the current banking trend of money-managing by modem.

Japan has strong growth potential for e-commerce due to high Internet penetration and rapid growth of mobile phones, market research giant ACNielsen Corp. Japan said in a "Consumer eFinance" survey conducted in July. If people are readily buying things online, then the next logical step is their readiness for doing more complex banking transactions online-not to mention the fact that the opportunity to check balances and pay bills without borders could help the foreign population here with handling their finances at home.

The ACNielsen Consumer eFinance survey also showed that 25 percent or 6.6 million people in Tokyo and Osaka had Internet access, with more than a million expressing interest to conduct online banking within the year and another half a million said they were likely to use mobile phone banking. The survey was conducted in November and December of 1999, and used telephone interviews with more than 2000 respondents aged 18 to 54.

Japan's emerging online banking sector is drawing a diverse group of new entrants that suddenly find it worthwhile to compete with existing players in the country's increasingly deregulated banking industry. The newcomers have the advantage of a clean slate without the stigma of bad debts. Mountains of bad loans, though reduced by write-off campaigns in recent years, remain a significant drawback to the existing banks in their efforts to make a new start. For long-suffering Japanese retail and business clients who put up with inefficiency and poor returns, the Internet promises to change the face of banking for the better.

It won't break the bank
Online banking is breaking down barriers of how traditional banking is defined. Thanks to new guidelines handed down by Japan's Financial Reconstruction Commission (FRC), now non-financial institutions can get into the highly regulated banking sector.

According to CNET News.com, Softbank CFO Yoshitaka Kitao said earlier this month that Softbank and Suruga Bank, based in Shizuoka, central Japan, had agreed to work together on Internet banking, with the former planning to set up a "virtual branch" within Suruga's networks.

A consortium led by Japan's biggest Internet investor (but not bank, despite its name) Softbank Corp. also won a bid to buy failed Nippon Credit Bank, which it intends to turn into a new type of bank focused on the Internet.

Even if online banking becomes more popular among people in Japan, it will be a while before banks of the brick-and-mortar variety will be destroyed. One of the drawbacks to banking online in Japan is how slow it is; unless NTT loosens up its restrictions a bit, and unless you have an ISDN line, a secure server, and the latest version of the web browser on your computer at home, banking online may take as long as standing in line at your local bank.

McDollars
If banking via computer doesn't catch your fancy, there are other alternative banking options available to you in Japan.

On August 18, 1999, an old and ailing branch of Bank of Yokohama Ltd., Japan's largest regional leader, teamed up with McDonald's Co., the world's largest fast-food chain, to open a hamburger and banking outlet. McDonald's customers can withdraw money from automatic teller machines (ATMs) on the premises of a branch located near a railway station in the city of Yokosuka, Kanagawa Prefecture either before or after chowing down on a double cheeseburger setto.

As a result of the partnership, a steady stream of customers, typically suburban mothers with children, now visit the "McBank" outlet. Many are attracted by the idea of the time-saving "double service" - the convenience of eating and banking all under one roof. Many a McDonald's has been spotted in department stores nationwide, but putting banking and burgers under one roof was a novel idea.

In July of this year, major Japanese electronics firm Toshiba Corp. said it and IBM Japan Ltd. plan to develop and operate another alternative to online banking - a system that will allow banking services using television sets via broadcast and communication satellites. Users will be able to use their TV to check their balances, pay bills and transfer funds. Toshiba will design and install facilities at broadcasting companies, and IBM Japan will handle the actual television banking systems. TV banking is expected to be easier for some older people than using a computer for online banking, because they can use the remote control instead of a keyboard.

More money than sense
As the Internet breaks down national boundaries and people increasingly demand cross-border services, financial institutions will have to use technology to deliver what their clients want.

In Asia, banking by computer is just beginning. Most firms have little more than a website with average information like news releases, branch locations and annual reports. DBS, the biggest bank in Singapore, had more than 10,000 Internet users at the end of last year, which was estimated to be about 55 percent of the country's online-banking market. Customers can access the web-based service to perform a range of transactions, as well as pay bills including utilities, credit cards, club fees and even traffic tickets. They can also buy stocks. Prodded by government warnings that foreign competitors like Citibank will use online services to steal business away - after all, with the Internet, a bank doesn't need an extensive branch network to reach customers - Singapore's banks have been moving fast to develop online facilities.

Beyond Japan and Singapore, banks elsewhere are lagging. The Philippines, for example, does not have the critical mass of wired citizens to convince banks there to pour the resources required to really get online banking going in that country. There are high up-front costs. For one, a bank must put all its data in digital form. In India, only about 8% of bank branches are computerized.

Still, Asia is where the Internet is growing the fastest, and online banking via the Internet is gradually becoming popular in Japan in line with a rapid growth in Internet connections. With Japan's penchant for convenience, this country is sure to lead the way.

Compiled from Reuters, Asiaweek.com, CNET News.com and The Economist Intelligence Unit Ltd. news reports.