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Japan's online banks go bricks-and-mortar to boost loan ops

Physical branches reassure borrowers, bolster chances for sales

SBI Sumishin Net Bank's office in Tokyo has processed 190 home loans in its first month and a half.

TOKYO -- Japan's online banks are venturing into the real world in search of new customers as the advantages the institutions offer on loan and savings rates dwindle, eroded by market saturation and painfully low interest rates.

'Blurring the line'

SBI Sumishin Net Bank in January opened its first bricks-and-mortar office in Tokyo's Shinjuku district, offering home loans through a partner agency. A man visiting with his wife to refinance a mortgage shortly after the office's debut marveled at the prospect of saving 7 million yen ($63,000), as well as the benefits of doing business offline.

"I used to have an account with an online bank, but I can get a clearer explanation face-to-face," he said.

Many customers are more comfortable discussing home loans in person, given the extensive paperwork and complex procedures involved in obtaining a mortgage and concerns about making payments. The SBI Holdings unit's office has consulted with around 330 prospective borrowers in its first month and a half, and has processed more than 190 home loan applications -- a completion rate about twice that for online customers.

"Real-world business is brisk," President Noriaki Maruyama said. "We're going to open more locations."

Deposits at six leading online banks topped 11.4 trillion yen at the end of March 2016 -- a substantial figure, but a mere 1.42% of the total for all Japanese banks. The industry has reached a turning point: The Bank of Japan's negative-interest-rate policy has slashed lending rates at large mainstream banks, carving into the advantage online banks held in that market. The internet-based institutions also are having difficulty distinguishing themselves by raising deposit rates, having already cut costs about as low as they can go.

The spread between online and traditional banks in terms of deposit rates is a mere tenth of what it was when the internet banking industry emerged. Meanwhile, "even bricks-and-mortar institutions have developed smartphone apps and expanded online banking offerings, blurring the line between the internet and real-world" banking sectors, said Yutaka Ito, president of Sony Bank.

As their traditional advantages disappear, online banks have little choice but to obscure that boundary further, building branch networks to better meet the needs of individual customers.

Useful connections

Jibun Bank is pushing home loans through KDDI stores.

Physical branches also allow more active sales techniques. Jibun Bank, a joint venture by Bank of Tokyo-Mitsubishi UFJ and telecom operator KDDI, has offered home loans through KDDI cellphone dealerships in Osaka and Tokyo's Shinjuku district since February. Employees have approached more than 200 shoppers, persuading several dozen to run through simulations showing how much they could save by refinancing their mortgages.

While those looking to buy a cellphone or have their smartphones repaired are not necessarily in the market for a home loan, Jibun's efforts "have paid off," a corporate planning official said.

The bank began letting customers open accounts at KDDI locations in August, planning eventually to push loans through all eight of the stores directly run by the carrier.

Sony Bank sees more loans sold through affiliate Sony Life Insurance. While the total number of home loan applications climbed 30% in 2016, those made through the insurer's so-called life planners doubled.

Lifenet Insurance has turned to agencies with offices, like Hoken no Madoguchi, to reach customers in person.

Insurers also are rediscovering the real world's appeal. Lifenet Insurance, which lets customers apply for and manage their policies online, was a massive hit when it debuted. But new enrollments during the year ended in March 2016 were down to around 40% of their peak four years prior. The insurer is exploring alternatives to its digital model, peddling policies through insurance agencies with physical offices as well as online.

Agency networks such as Hoken no Madoguchi Group, with roughly 600 locations nationwide, are major beneficiaries of this shift. Around half of Lifenet disability insurance policies are now sold in person through such agents, and the share of all new policies sold directly apparently has fallen to around 70%. While internet-based financing still has a role to play, bricks-and-mortar operations are increasingly key to growth -- a lesson companies will need to learn quickly if they hope to stick around for long.


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