TOKYO -- Japanese banks plan to establish a new international money-forwarding system that will include 10 other countries in the Asia-Pacific region and slash fees by 90%.
Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking Corp. and Mizuho Bank all seek to take part in the network, which will debut in 2018 at the earliest. The system is backed by the nation's Financial Services Agency and the Japanese Bankers Association. Other banks likely will follow, and the network may expand to Western countries and elsewhere in the future.
Data systems companies from the 11 participating countries -- including Japan, China, South Korea, Thailand and Australia -- will discuss the creation of the system. NTT Data will represent Japan.
Funds are wired from Japan about 6 million times yearly, exceeding 180 trillion yen ($1.51 trillion). Transfers between Japanese banks and overseas counterparts currently are handled one at a time. As a result, companies face estimated fees of 4,000 yen to 5,000 yen per remittance, while individuals are charged 5,000 yen to 6,000 yen. These fees extrapolate to roughly 30 billion yen annually.
The new system will cut costs by transferring funds in bulk, providing relief especially for small to midsize companies that lack overseas units. Demand likely will come from large companies as well, since they frequently do not engage in small transfers through foreign affiliates.
The system will apply to transfers that do not require quick processing, such as fixed direct deposits for overseas wages or payments to cover study-abroad expenses. Currently, transfers from Japan generally can be processed the same day. With the lump remittances, transfers are expected to take about one or two days.
The global trend to lower service fees comes amid the rise of the financial technology sector, which combines information technology and financial services. PayQuik, a U.S.-based cross-border payments startup purchased by Citigroup, serves over 90 countries. Also, the U.S. is joining dozens of other countries in creating a new money-transfer system. Fees for both of these services total only a few dollars per transfer.
Though shrinking service fees will translate to lower revenues, Japanese banks are looking to retain their clients -- and their competitive edge -- before those low-cost services become the norm.
Overseas money transfers are costly in Japan because only the megabanks and some regional banks can process them. Other regional banks that normally do not deal with foreign financial institutions often rely on major banks to handle overseas transfers, as do credit associations and credit cooperatives. This tends to inflate service charges.