Days are numbered for ATMs in Japan’s banking system

On May 2, Shinsei Bank announced that starting from October it will impose fees for automatic teller machine (ATM) transactions. Shinsei’s main sales point has always been its lack of ATM fees, but the bank will start charging ¥108 per ATM withdrawal unless the customer’s account satisfies certain conditions.

According to the May 24 issue of the weekly magazine Sunday Mainichi, Shinsei had about 3.14 million customers as of the end of March, and the bank estimates fees will be levied on about a third of them. The bank also assumes a good many customers will move their money to a different bank once the planned fee policy goes into effect.

Shinsei Bank does not maintain ATMs of its own. Shinsei customers who wish to withdraw or deposit money in their accounts through ATMs have to access other companies’ machines, which means that, at present, Shinsei pays user fees to these other companies and does not pass that fee on to its customers. Shinsei says it will waive the new fees for customers who maintain accounts with a certain minimum balance. It is also introducing a prepaid card system, and if a customer keeps the card charged with a certain amount of money, the customer will not have to pay any ATM fees.

In essence, Shinsei is trying to wean its customers off ATMs, a movement that has become widespread in Japan’s banking industry.

ATMs are expensive to install and maintain. Banks hire security companies to refill the machines with cash and then remove the cash after business hours and transport it to the Bank of Japan.

Also, in Japan, as in many other countries, there is a stamp tax on legal documents called inshizei, which is also levied on bank account books (tsūchō). Banks pay ¥200 a year for each book they issue to account holders. In fiscal 2016, banks paid more than ¥70 billion in stamp taxes for bank books. As banking becomes less paper-oriented, many financial institutions are trying to do away with bank books.

According to an article in the April 20 Mainichi Shimbun, Tochigi Bank is trying to get its customers to download a smart phone app called Kantan Tsucho (Simple Bank Book), which, on the user’s phone screen, looks just like a bank book.

In order to use the app, account holders don’t have to be part of Tochigi’s online banking system, though, in the long run, that is what the bank would prefer. Tochigi Bank can save several hundred million yen a year in stamp taxes, not to mention printing costs, if customers start using Kantan Tsucho. The next step would presumably be phasing out ATMs, as well, once customers start using online banking.

ATM reduction has become a central part of the Japanese banking industry’s rationalization scheme. Mizuho Financial Group has a plan to eliminate 19,000 employees and 100 branches by 2026. Mitsubishi UFJ Financial Group (MUFG), Japan’s biggest commercial bank in terms of deposits, will cut 9,500 jobs by 2023.

These reductions are not being made just for the sake of efficiency.

When near-zero interest rates became the norm, consumer banks can no longer rely on their principal profit-making activity, which was lending money. They have had to find other ways to turn a profit, and for the most part they have since relied on service fees, many of which are related to ATM usage. But now they see the end of the ATM because their cost is not worth what they generate in fees.

A representative of MUFG, which alone spends about ¥7 billion a year on stamp taxes, told the Mainichi that the bank is actively trying to get customers to switch over to online banking, where account holders carry out transactions on their computers or mobile devices.

In order to persuade people to make the switch, MUFG is thinking about charging a fee to anyone who retains their bank book. Eventually, they may introduce account management fees, like those charged by financial management and securities companies. However, the representative told Mainichi that MUFG still needs to gain “customers’ understanding.”

The point is that Japan is still very much a cash-based society, and people need ATMs to deposit and withdraw cash. More significantly, they need them near their homes and places of work. Even as banks eliminate physical branches, ATMs need to be in convenient locations.

ATMs were originally introduced to cut personnel costs, and as customers became more accustomed to using them exclusively for their banking needs, banks kept adding more fees for certain transactions. Larger banks have their own ATMs and tend to not charge customers for their use if the customers maintain minimum bank balances, though they usually impose fees for off-hours transactions and charge nonaccount holders for using their ATMs.

Getting customers to sign up for credit and debit cards is the most common method banks use to get them to move away from cash. Fees for credit and debit cards are charged to retailers, not users. All banks impose fees for remittances through ATMs, but some may waive remittance fees if the customer has a debit card issued by the bank. By waiving ATM fees for card holders, these banks are trying to encourage users to switch to cashless transactions.

The three mega-banks — MUFG, Sumitomo Mitsui Financial Group and Mizuho — as well as Resona Bank, have reduced their ATMs by 10 percent over the past 15 years. Some smaller banks now “share” ATMs or eliminate them altogether by having their customers use convenience store ATMs.

However, according to an article that appeared last November in the business magazine Diamond, even convenience store ATMs are on the wane.

Seven Bank, the financial services arm of Seven & I Holdings Co., the company that runs 7-Eleven, operates more ATMs — 23,368 as of the end of February — than the three mega-banks combined.

Seven Bank ATMs are used by about 600 financial institutions, whereas its main competitor, Enet ATMs, which are found in FamilyMart stores, partner with more than 60 banks. Convenience store ATMs have fewer functions than bank ATMs — they don’t record transactions in bank books, for example — and cost one-third to one-half what it costs to maintain a bank ATM.

Every transaction has a fee attached, which is either paid for by the user or the bank where the user has an account. But Diamond found that even the use of convenience store ATMs is declining.

In fiscal 2012, each Seven Bank ATM recorded 111.1 transactions a day on average. By fiscal 2016, the number had dropped to 95.5.

The main brake on the rapid demise of ATMs is Japan Post Bank, which has more than 27,000 machines nationwide. If Shinsei Bank customers decide to jump ship because of the new fee policy, they will likely move to JP Bank because there are no fees for deposits or withdrawals, and no minimum balance requirements.

JP customers can also remit funds for free up to three times a month as long as the remittances are made to other JP accounts. The main limitation is that JP ATMs are not available 24 hours a day.

On the other hand, since JP ATMs are installed in post offices, which are considered a lifeline for residents in rural and depopulated areas, JP will likely ensure that they remain, regardless of whether they are unprofitable, but even their days are probably numbered.

Re-disseminated by The Asian Banker from JapanTimes.co.jp

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