Time to add mobile for banking in Japan
Japan is unique. Japanese society has witnessed a tremendous change – from a rich traditional past to a technologically advanced present. But this isn’t what makes Japan unique, as technology has changed a number of countries. Japan is unique because it maintains a strong blend of tradition and the latest trends. As the second largest developed economy in the world, Japan is often associated with the latest technologies – from cutting edge consumer electronics and robotics, to foundational technologies such as being the world’s biggest supplier of the machines required to imprint tiny circuitry on semiconductors and liquid crystal displays.
However, there are some curious aspects – for example in banking, Japanese consumer behavior still indicates a preference for traditional practices. Despite being in the top 10 for mobile phone penetration – with more phones than people – Japan is ranked 27th for smartphone penetration. IDC reported that shipments of feature phones in 2015 had fallen to a record low of 20% of the total, so clearly this position may change soon. As feature phones continue to lose ground to smartphones, what will happen to mobile banking? Let’s look at some of the global trends.
Global Mobile Banking scenario
The rapid proliferation of smartphones and the new wave of mobile technology solutions have facilitated widespread use of mobile in banking services. Today, mobile banking apps can virtually turn any smartphone into a fully operational personalized bank. These apps are facilitating cash transfers, payments and new account opening as well as offering applications for loan in minutes, without customers having to physically visit the branch. Mobile-banking users worldwide are expected to more than double to 1.8 billion by 2019, as per Juniper Research and KPMG report. Mobile is the first choice for banking for younger, tech-savvy and economically active customers. Globally, mobile banking is on the rise with greater adoption and higher penetration.
Keeping up with customers preferences for ATM & branch banking along with trying to change customer preferences for mobile banking can be expensive for banks. The cost of conducting transactions at ATMs globally is up to 13 times higher than through a mobile phone, according to Javelin Strategy & Research and KPMG analysis cited in the UBS study. The data shows that the transactions done at branches cost up to 43 times as much. Hence, banks are also trying to invest in technology by introducing user friendly features on their mobile banking apps to facilitate higher penetration of mobile banking among its customers and reduce cost due to physical banking and banking infrastructure.
Mobile Banking in Japan
According to the survey done by UBS Evidence Lab, Japan ranks last among 18 nations for customers banking by phone.
China ranked No. 1 in the UBS survey, with 63 percent of customers using their phones for banking, whereas only 16 percent of customers preferred mobile banking in Japan. The reason for this low penetration of mobile banking in Japan probably is due to a heavy reliance on cash transactions. This shows a stark contrast in preference for branch banking between China and Japan. In China, long queues at crammed branches have driven people to using portable devices, whereas in Japan, people are still very comfortable with branch and ATM banking. This is mainly because physical outlets and ATMs in Japan can do much more than mobile apps, according to the UBS study.
As per the above mentioned UBS report, there are still a lot of customers in Japan who like branches, and perhaps that is part of the reason for the lack of urgency. This customer behavior has been one of the reasons for Japanese banks not moving to mobile banking in a big way. According to another study by Fujitsu Research Institute, facilities such as money transfer, updating transaction records by inserting passbooks through ATMs, make them more popular than branches. About two-thirds of customers use the machines at least once a month, while 21 percent visit branches, the report shows. Japanese customers are satisfied with using ATMs and cash at the moment and want to continue with the cash and passbook system with banks that they have trusted for decades.
Is it time for change?
Despite customer preference for cash transactions and branch banking, Japanese banks are adopting online and mobile banking. Japan currently has six Internet banks, which concentrate heavily on online banking. The most app-focused of the six is Jibun Bank, a joint venture between Bank of Tokyo-Mitsubishi and wireless operator KDDI Corp. Jibun has attracted 2 million accounts since it started in 2008 and is adding about 350,000 a year. The bank adopts a mobile-first approach and offers every transaction through the mobile-banking app. The internet banks are innovating. One such innovation is software that allows customers to open an account by uploading a photo of their driver’s license.
The traditional method of applying for a loan involves exchange of several documents, printing, scanning and electronic mailing of documents between the bank and the borrower. This process becomes more cumbersome in case revisions and re-sending of documents is involved. Mobile lending eliminates such redundant paperwork and procedures through streamlined, secured upload of documents and automated notifications. Mobile lending facilitates instant communication between the bank and the borrower which brings transparency in operations and helps build trust. A lot of banks globally are leveraging mobile app for lending purposes. Credit score check, loan eligibility check, pre-approved loans, real-time account updates are few examples of innovative offerings in lending which have been used by banks to attract customers to adopt mobile based lending. Customers are looking for options which provide more convenient way for submitting their loan application than visiting a branch.
The way forward
Jibun Bank is adopting futuristic approach but it might have an impact on the business of the parent company, which follows a traditional approach. While bankers expect the mobile-banking sector to grow, they still want customers to come to the branches. So a mobile-first approach may not be ideal for all the banks and a combination of traditional and mobile might work better for such organizations. As the option of mobile banking is not the sole criteria for customers to choose a bank and not all customers would prefer to carry out their banking with mobile, the banks need to make the transition gradually. They could look at introducing mobile in certain specific areas, educating the customer on the benefits and slowly widen the scope of mobile banking based on the customer response.
While the customers in Japan do not prefer mobile banking in a big way, the banks realize that it is an unexplored opportunity for the future. As a result, the banks are making conscious investments in technology to incorporate mobile based lending in their portfolio. It cannot be predicted how soon would mobile based lending become a customer preference in Japan, but going by the trends globally, it may happen in near future and the banks that the first mover in this area would definitely stand to benefit.