Emergence of online banking and new types of banksThe spread of commercial internet services in Japan in the 1990s paved the way for the first bank to launch an online banking service in 1997. Following the deregulation of the banking sector, so-called new types of banks emerged in the 2000s. One of them was Japan’s first direct bank, Japan Net, Ltd., which started operations in 2000. New-type banks like Japan Net Bank, which was renamed PayPay Bank in 2021, are categorized as “other banks” in Japan. This category includes direct banks specialized at offering online-only services without operating any physical branches and banks established by large retail groups such as AEON Group, Seven & i Holdings that mainly offer their services online and operate a large network of ATMs in their stores.
Due to the coronavirus (COVID-19) pandemic, many consumers have refrained from visiting physical bank branches and increasingly turned to digital channels to access banking services. As a result of this development, online banking services and direct banks gained momentum in 2020. Rakuten Bank, a subsidiary of Rakuten Group, was the first direct bank to surpass 10 million bank accounts in Japan and saw transactions increase by more than 20 percent in the same year.
Challenge for traditional banksThe recent development poses a challenge for traditional banks that had been rather slow to adapt to the new digital age in the past. In contrast to direct banks, they bear the cost of operating a large network of branches in an environment of low interest rates and declining profits. In recent years, banks have accelerated efforts for a digital shift, reducing the number of physical branches and promoting the use of digital services, such as online and mobile banking services and mobile wallets. One of Japan’s leading bank, Sumitomo Mitsui Banking Corporation, forecasted its number of active online banking users to increase from 6.4 million in fiscal year 2019 to eight million by 2022.
Alongside these efforts, some banks have started to establish digital banks that offer their services exclusively through smartphones. In May 2021, Japan's first digital bank, Minna Bank, a subsidiary of Fukuoka Financial Group, began operations. Similarly, Mizuho Financial Group and LINE Corporation announced plans to establish a joint digital bank by 2022.