With personal savings in Japan exceeding $11 trillion, Japan Net Bank's stated three-year goal of reaching Yen 1 trillion ($9.25 billion) in depositsfrom one million accounts seems quite attainable. Yet reaching profitability may prove to be a much tougher battle for the Internet-only bank and its 50% shareholder, Sakura Bank.
"You can attract deposits, but deposits don't necessarily translate into profits," said Jason Rogers, a banking analyst in the Tokyo office of Fitch, the credit rating agency. "The UK online bank Egg met their two-to-three year targets within the first three months by offering attractive rates of return."
In late October, Sanwa Bank abandoned plans to create an Internet-only bank in conjunction with credit card issuer JCB, publisher Recruit, and Hitachi, citing concerns about profitability.
Japan Net Bank opened its virtual doors in October, offering interest rates on savings accounts and time deposits 10 to 20 basis points above those ordinarily available to Sakura Bank customers, and money transfer fees set at about two-thirds of the equivalent service charge from an ATM. However, the bank levies a monthly fee of slightly under $10 for depositors that fail to maintain an average balance above $2,775.
"Sakura seems to be at the forefront of retail banking at the moment," said Fitch's Rogers. "They've got some high hopes for Japan Net Bank."
Other stakeholders in the $185 million venture include 10% partners Sumitomo Bank, Fujitsu and Nippon Life Insurance, and 5% partners NTT East, NTT DoCoMo, Tokyo Electric Power and Mitsui.
As gatekeepers to the Internet, many of these stakeholders are poised to play key roles in the acquisition of high-value customers. Fujitsu operates an ISP (Internet Service Provider) called @Nifty, while NTT East and Tokyo Electric Power control expanding fiber-optic networks that will increasingly be used to offer high-speed Internet services to home users. Furthermore, NTT DoCoMo's innovative "i-Mode" wireless Internet service leads Japan with an 11 million (as of August 2000) subscriber base that observers expect to be a fertile source of online bank customers.
Sakura Bank will leverage its Japan Net Bank experience toward the creation of another Internet bank-a $347 million venture in which Sony has an 80% share and which is slated to launch in the first half of 2001. As a 16% shareholder, Sakura Bank will provide access to its ATM network. New York-based J.P. Morgan will hold the remaining 4%, supplying users of the service with personal financial advice tools.
"Our entrance into the banking industry adds to the efforts we have already begun in the life and nonlife insurance fields, establishing financial services as a core business of the Sony Group," said Sony president Nobuyuki Idei in a statement.
The venture will reach customers through Sony's So-Net ISP and via an online service targeted at users of the network-enabled PlayStation 2 gaming console. Although the initial capitalization of Sony's Internet bank is higher than that of Japan Net Bank's, its asset growth schedule is two years slower. Sony's Internet bank intends to attract x1 trillion in assets on a five-year timetable. The venture intends to reach profitability by the third year of operation, and hopes to make up all cumulative losses by the end of the fifth year.
Both Sony and Sakura are drawing upon Fujitsu for system integration services. Fujitsu will deploy a banking accounting software package on top of a UNIX-based operating system.
Other contenders for the Sony contract were IBM Japan, Hitachi and NEC, which are involved in separate financial services ventures with banks and non-banks alike. NEC is developing online banks for Societe Generale and for Ito Yokado, parent company of 7-Eleven Japan. IBM Japan is part of E-Net, a venture providing ATM services for convenience stores led by Bank of Tokyo-Mitsubishi and a group of store operators, including FamilyMart and Sunkus, with over 12,000 outlets in Japan.
Japan Net Bank customers will have access to 5,300 Sakura Bank ATMs, including those located in "am/pm" convenience stores.
According to senior industry analyst Ken Katayama of NRI Pacific, San Mateo, Calif., the key to acceptance for Internet-only banks is strong cooperation with ubiquitous ATM networks.