New Forms of Banking
Major supermarket chain Ito-Yokado Co. and electronics maker Sony Corp. have made their entries into the banking world. The central plank of Ito-Yokado's venture is to establish a retail bank that generates profits from transaction charges and does not deal with loans. In practical terms, it is planning to install automatic teller machines in about 8,000 branches of its subsidiary convenience-store chain, Seven-Eleven Japan Co., offering customers such services as cash deposits and withdrawals and money transfers.

Internet banking is the distinctive feature of Sony's venture, meanwhile, which will operate with no actual branches. Unlike Ito-Yokado, Sony's plan includes getting involved not only in everyday transactions but also in savings, loans, and sales of personal financial products aimed at individuals, such as investment trusts. With the lack of branches seen as a potential weakness, Sony intends to make use of existing ATMs for cash deposits and withdrawals.

The reason both these companies are entering the banking industry is that they hope their ventures will have a synergistic effect on their principal operations. Ito-Yokado is looking to its installation of ATMs to make its affiliated convenience stores even more handy for customers. Sony sees the capacity to deal with payments and transfers as essential for online electronics sales, which is slated to be its core business in the future.

Reacting to these developments, the Financial Supervisory Agency and other financial authorities are taking the stance that they will respond positively to applications for new licenses, while cautioning that it may be necessary to put in place some checks and balances in order to protect the public good. There are fears that if a non-banking company owns a bank, the bank's operations may end up being largely decided by the business situation of the parent company. There are also lingering worries of moves toward institutionalised banking, where parent companies use their banks as easy sources of cash. Addressing these concerns is one of the main goals of the new standards being drawn up by financial authorities.  

Four Big Banking Groups Emerge
Meanwhile, the domestic realignment of Japanese banks aiming to survive fierce international financial competition has

accelerated further. The three remaining "city banks"--the Sanwa, Tokai, and Asahi Banks--have decided to establish a joint financial holding company in April 2001 and consolidate their operations. The combined capital of the resulting group will be 103 trillion yen (981 billion U.S. dollars at 105 yen to the dollar), making it the second biggest bank in Japan and the third biggest in the world.

The merger of the Sanwa, Tokai, and Asahi Banks follows announcements by Dai-Ichi Kangyo Bank, Fuji Bank, and the Industrial Bank of Japan of their intention to form the Mizuho Financial Group in autumn 2000 and by the Sumitomo and Sakura Banks of their spring 2002 merger. Tokyo Mitsubishi Bank completes the picture of four "megabanks." This wave of realignment began in response to the growing need to invest in information technology to compete with overseas banks, a burden that one bank alone cannot shoulder.

Although the trend toward realignment seems to have reached a plateau, this does not mean that the security and survival of these banks is guaranteed. Each of the new banking groups will be put to the test by even more fierce competition both with their similarly merged rivals and with major overseas banks. The challenges of clearing away their remaining bad loans and increasing profitability still remain. There are also plenty of signs that the innovative ways of banking offered by newly formed banks will trigger more competition for domestic business. The financial wars are setting off in a new direction.