Japanese Banks: A Guide for Foreign Residents

Japanese banks are notorious for being one of the biggest inconveniences for foreign residents in Japan. Rules that make no sense, lack of accessibility, and fees, fees, FEES! But is it really just foreigners who are facing these struggles?

Why are Japanese banks so inconvenient…and so expensive? And what are the best options for immigrants to Japan?

Foreign Gripes With Japanese Banks

Okay, so maybe banking isn’t supposed to be the most pleasurable experience. Low interest rates and fees are hardly a thing to get excited about. But when so many people are venting so many frustrations about the same thing, it begs the question: is there a bigger issue? On Twitter, user Alice shared her grievances:

ありす🇱🇨🇬🇧 on Twitter

@JDGans @JusticeKazzy_ Barely anything is online, mountains of paperwork, have to go to a specific branch of the same bank to get stuff done, apps are useless, overseas transfers a nightmare, waiting times are insane, FEES SO MANY FEES, ATMs close after a certain time, still can’t use cashless

She continues:
I’m with shinsei, ufg, resona and smbc – which brings me onto another topic: all of my workplaces requiring me to open an account in a SPECIFIC branch of a specific bank to receive my money.

She wasn’t alone. Many users chimed in with similar experiences. Several weeks later, another long-term resident in Japan from the US shared his story:

レN2ー on Twitter

VENTING because I’m VEXED: I love Japan. If I didn’t, I wouldn’t still be living here, but there are just some things (like BANKING) that really push me to my wit’s end. 1st Year: Had a car in the US Gave it to my brother Brother gave it to his dad Car accident happened (1/?)

His unfortunate situation, which started with an accident and is discussed in detail in the thread, reveals the disturbing incapability of Japanese banks to do virtually anything without putting customers through an entire Olympic Games’ worth of obstacles just to retrieve their own money.

Japanese Banks: An Outmoded System

Horrible business hours, poor accessibility, dinosaur-age technology, and fees on top of fees… for a country so ahead of the game in technology, the inadequacy of Japanese banks is unimaginable. And it’s not only foreign residents facing these struggles. Apparently, the banking system of Japan just sucks all around.

Japanese Banks and the Zengin System

First, let’s understand how the Bank of Japan (BOJ) works. In order to operate a banking business, it is necessary to have a reliable infrastructure managing the flow of funds. That’s where the Zengin System comes in.

This is the complex accounting system responsible for connecting and maintaining processes between financial institutions throughout Japan, including head offices, bank branches, and ATMs. It is an essential infrastructure of the economy, with an average of approximately 4.7 million transactions of about 10 trillion yen daily. 

Maintaining the Zengin System is no easy task. Individual bank branches must settle every transaction via the Zengin System to the BOJ. High-value transactions (100 million yen and above) are settled on a real-time gross settlement (RTGS) basis via Bank of Japan (BOJ) account deposits. For smaller amounts, the Zengin System Computer Center aggregates and calculates payments of each financial institution, and sends them to the BOJ online. 

Why Do Japanese Banks Close So Early?

Though some banks are slowly but surely improving convenience, one of the biggest gripes is bank business hours. Despite company employees on the clock until 5:00 PM or later, with banks closing as early as 3:00 PM, many have no choice but to scramble to the service counter during their lunch break. Why do banks close so early?

Believe it or not, it is actually the law. The banking system is one of the most highly-regulated industries, to the point that even banking hours are determined by law. Article 16 of the Regulations on the Enforcement of the Banking Law defines business hours for banks from 9:00 AM to 3:00 PM. However, despite early closing times, this doesn’t mean that employees get to go home. In fact, closing time is when the real work begins.

The Real Work Begins At 3

The Zengin System cuts communication with banks by 3:30PM, and everyone goes to work. Bankers must account for all exchanges with all customers at all branches on a daily basis. This includes withdrawals and deposits, transfers between accounts, payments for bills and fines, taxes, and even ATM transactions. All exchanges also require some form of physical paperwork from the customer, such as withdrawal and deposit slips.

Bankers must review all of these transactions, making sure all information matches and accounting for any discrepancies. By 4:15 PM, the Zengin System confirms the results with each bank, and settles all the funds in the BOJ account via the BOJ-NET Online system. 

Japanese Banks Are A Business… and it’s Failing

The advent of cashless, mobile banking and online banking are leaving Japan’s banks looking incredibly obsolete. (Picture: Ushico / PIXTA(ピクスタ))

That brings us to the next issue with Japanese banks. Even the fees have fees! Why must customers pay so much to access their own money?

The fact is, banking is ultimately a business over anything else. The role of the bank is not just to help customers manage their money, but to MAKE money. And like any business, if you want to remain profitable, you need to keep up with the changing times. The bank is no exception to this rule. They just haven’t been very good at keeping up.

Customers First… Except in Banking

Western businesses commonly send customer surveys and request feedback. “How did we do?” “What kind of improvements would you like to see?” Many businesses make great improvements simply by acknowledging customer woes.

In Japan, however, that practice is unheard of in banking. In banking, the customer is secondary. Their purpose is profit, regardless of inconvenience. Banks know they can get away with it because of how essential their services are. Even if you put all your savings under your mattress, the fact is that banking accounts are still necessary for various daily transactions… even getting paid!

Why Jobs Require Specific Banks

A bank account is a basic requirement to get paid. But which bank you use is up to the sole discretion of your employer. Here is yet another cause of inconvenience for foreign residents and citizens alike.

People who do business with more than one company often find themselves in need of separate accounts at different banks for each job. The reason goes back to all those fees. It’s not only individuals but their employers, as well, who are subject to fees.

Banks charge business owners transactional fees when paying employees. This is a necessary business expense required by labor laws. Fees can NOT be deducted from the employees’ salaries. Because fees vary by bank, businesses must designate a specific bank to maintain order when calculating expenses and paying employees. Using a specific bank cuts costs and guarantees equal fees charged for each employee, which keeps it fair for the business owner.

A Necessary (But Useless and Expensive) System

Perhaps all this inconvenience is a clever scheme to leave customers at the mercy of a system that is so expensive, but so necessary. Yet contrary to this obvious need, in-person banking is nonetheless becoming outdated as the rest of the world goes digital.

According to Japanese author and economic critic, Tsukasa Jounen, banker’s skills are becoming useless. Yet despite living in a world that is transitioning to digital currency, artificial intelligence, and online banking, we can’t even complete simple processes like filling paperwork and updating personal information (such as changes in address) online. The physical bank is a collapsing business model that is heading towards extinction faster than the asteroid that took out the dinosaurs.

Are Japanese Banks In Danger?

Japan’s top banks are dwindling in revenue rapidly while account management costs continue to rise. Mizuho Financial Group estimates the direct cost of cash transactions and labor at approximately $73.60 billion annually. High fees guarantee banks can maintain existing outdated models without going bankrupt, but also without improvement. In other words, the reason bank fees are so high is that… they can’t afford not to be! Customers are basically paying to finance their obsoleteness.

The BOJ is currently employing negative interest rates. Should these continue to drop, banks may charge even more (and higher) maintenance fees to account holders. Mizuho Bank even raised its over-the-counter transfer fees from 400 to 900 yen this past November, and announced increased ATM fees this coming March. Satoshi Kumagai, Executive Officer at Lawson Inc. (a popular convenience stores chain), suggests going cashless to help reduce these costs. However, the reluctance to move from cash-based to cashless is exactly what’s holding them back.

Raising service fees while refusing to improve online access is like sticking an IV tube into a dying business model in vegetative state and praying for an economic boom. All those fees could be reinvested into developing online technology, but that’s not what they are doing. In fact, Japan ranks at the very bottom of digital finance, crushed by countries that employ fintech solutions such as Alipay and WeChat. If the solution is as easy as going online, why have they had so much trouble keeping up?

A New Generation of Finance

Pile of cashPicture: Graphs / PIXTA(ピクスタ)

The times, and generations, are changing. Despite the flack they get for “killing” certain businesses, millennials have actually made huge strides in business. Monetary transactions via online platforms such as Facebook Messenger and WeChat are becoming commonplace. A TIME Magazine survey revealed that 75% of millennials prefer online money services by Google, Amazon, and PayPal over physical institutions. Another survey predicts that a third of millennials wouldn’t even need a bank within five years’ time.

Millennials aren’t “killing” businesses. They’re completely revamping them to keep up with the times. It is those who stubbornly refuse to adapt that are hanging themselves with the rope of inevitable change.

“Tradition” Over Change

It’s one thing to honor tradition, but a completely different thing to cite that as an excuse to refuse change. A controversial Tweet by a self-proclaimed Japanese “nationalist” proved this point last week by blaming foreigners for “endangering Japanese traditions,” with outrageous proposals to limit foreigners’ rights and influences within Japan.

The identity of the account owner is unknown, though users speculate an older man posing as a young girl to stir the pot. Aside from the obvious ignorance of their statement that we won’t get into right now, it is this kind of outdated viewpoint that keeps Japan lagging so far behind in certain areas, including finance. The belief that outside influence is a threat, and anything foreign is dangerous.

(Sorry, folks, but it’s not “tradition” keeping you stuck in the Dark Ages. It’s painfully ignorant close-mindedness and the failure to keep up with the times.)

Japanese Banks Build A Wall Against Change

Sadly, that mindset reflects a disturbingly large portion of people who are equally resistant to change, particularly amongst the elderly and aging. However, this resistance only provides more economical setbacks and higher fees.

In December 2019, Japan’s Fair Trade Commission investigated certain financial institutions under the suspicion of attempting to create a barrier to prospective financial technology partners by intentionally imposing certain fees. Are Japanese banks THAT afraid to incorporate change? Sure, change can be risky… but so is your entire banking system going bankrupt.

Toshio Taki, Director and Executive Officer at Money Forward, Satoshi Erdos Kato, author of “Kikai no Nou Jidai” (“Age of the Mechanical Brain”), and Takuya Kitagawa, Managing Executive Officer and Chief Data Officer at Rakuten, discussed this reluctance to change at a data science event. They note that while as much as 70% of people in Japan use cash, only about 20% of Japanese people use online banking. (The rest use cards such as credit cards and Suica.) For money transfers, about 80% use the ATMs at their local banks. 

He notes some of the biggest barriers to mobile banking are difficult-to-use apps with poor user interface, as well as security concerns. A legitimate concern, considering 7&i’s failed attempt at a cashless app, 7pay, and the ensuing disaster. But regardless of these risks as a hindrance to open banking, it is becoming increasingly evident that there may soon be no other choice.

Japanese Banks Aim for Improvement

Thankfully, the past few months have shown hope for improvements, with new openness to online banking. Japan is acknowledging how going digital can not only reduce banking costs but even help deal with the issues of population decline and the resulting shrinking labor market. Japan aims to double cashless settlement use to 40% by 2025.

Some large tech firms, such as SoftBank, Yahoo Japan, and LINE Corp, have jumped on the bandwagon, promoting their new own online payment systems. SoftBank and Yahoo Japan’s joint QR code payment app, PayPay, has seen great success so far, with memberships rocketing from 5 million to 15 million since just this past August. Japan is also exploring the possibility of a new “digital yen,” according to a recent news conference.

Surviving When the Banking System Is Dying

Well, now you know WHY banks suck… but what can you do about it? Well… nothing really. However, there are ways to prepare and options to consider.

Banking as a Foreigner in Japan

Only foreign nationals with valid long-term or permanent residency qualify for a Japanese bank account. In general, you will need to either prove residence in Japan for at least 6 months, or employment with a Japanese business that is willing to vouch for you. You will need a valid resident card, proof of residence (such as utility bills), a valid passport, and a hanko seal. (Many banks still strictly require hanko but they are easy to obtain. Your employer can usually help you get one).

Recommended Japanese Banks for Foreigners

Some circumstances are unavoidable, such as designated bank requirements by your job. But if you have the liberty of choosing your own, or if you want a separate account, there are options for you.

One recommendation is, believe it or not, the Japan Post. (The Japan Post Office has historically also been used for banking, which you can read more about here.) Their fees are generally less than regular banks, and as a plus, you can take care of your mail at the same time.

Another foreigner-friendly option is 7-11 Banking (my own personal favorite). 7-11 banking is available at all 7-11 convenience stores via their ATMs. These ATMs are also equipped to handle withdrawals from participating bank accounts overseas using your foreign credit or debit card. (You may want to notify your home bank before traveling, however, to avoid the possibility of triggering “suspicious overseas transactions” warnings.

In conclusion, while the Japanese banking system is still, unfortunately, very much behind the times, it is a breath of fresh air to see more big-name branches jumping aboard the modernization train. After reaching such a pivotal point in the development of financial technology, we can only sit back and hope that this will lead to more and more companies continue to improve and advance online banking technology and accessibility.

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