Japan's digital banks are pulling ahead of the nation's megabanks in attracting deposits, luring customers in with better products and services at a time when monetary policy normalization is expected to fuel lending growth.
Digital banks typically offer a friendlier interface, higher deposit rates and securities-linked products to attract customers. As a result, they are often perceived to offer better services than traditional lenders, including the megabanks.
"Deposits at digital banks will likely keep growing faster as they come on strong in the digitization of the retail banking," said Hideo Oshima, a senior economist at Japan Research Institute.
Deposits have become the precious war chest for Japanese lenders to grow their net interest margins as interest rates rise following the Bank of Japan ending its experiment with negative interest rates in March. The central bank said it would guide its short-term policy rate in the range of 0% to 0.1%, from -0.1 to zero, the first rate increase in 17 years.
The central bank is also due to unveil detailed plans at the end of July to reduce its purchases of Japanese government bonds, another de facto tightening move that will lead market interest rates higher.
The four major digital banks — Rakuten Bank Ltd., SBI Sumishin Net Bank Ltd., Daiwa Next Bank Ltd. and Sony Bank Inc. — grew their combined deposits 17% to about ¥28.510 trillion as of March 31, a pace of growth nearly double the previous year, according to data from S&P Global Market Intelligence.
By comparison, Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc., the three megabanks in Japan, grew their deposits by just 5%, albeit on a much bigger base.
Among individual digital banks, SBI Sumishin grew its deposits 18.7%, while Rakuten grew 16.2%. Rakuten had the biggest deposit base among the four, at ¥10.440 trillion. Still, it was only a fraction of total deposits at MUFG of about ¥250.550 trillion and more than ¥170 trillion each at Sumitomo Mitsui and Mizuho, the data shows.
Rakuten Bank, a unit of Rakuten Group Inc., which has several businesses that include securities services and mobile operations, plans to boost deposits by an average 20% per year to ¥20 trillion by March 2027, according to its earnings statement May 13.
"We can't beat [the digital banks]" in terms of the pace of collecting deposits, said an unnamed source at one of the three megabanks. "They're becoming a threat to us."
While the three megabanks offer all the same rate of 0.025% for one-year fixed deposit, Sony Bank gives 0.35% for a similar fixed deposit, followed by Rakuten Bank at 0.25%, SBI Sumishin Net Bank at 0.1% and Daiwa Next Bank at 0.05%, spokespeople at the megabanks said.
"Currently, the differential in deposit rates [between the digital banks and the megabanks] may be marginal," Oshima from Japan Research Institute said. "But if the [policy] rates move higher to 1.0% or more in future, then the difference would become significant."
"We have been increasing deposits at a frenetic pace as interest rates go up," Yoshitaka Kitao, CEO of SBI Holdings, which owns SBI banking and securities units, said during an earnings press conference May 10. "Money would flow to a place with higher rates."
The strategy allows depositors to transfer money from a bank account to a brokerage account for an investment and move profit out of the investment to the bank account for savings. The megabanks, not being tied to brokerage units of their groups, offer just 0.02% to their savings account customers.
The bank-securities collaboration provides "a convenience and an incentive" for customers, said Katsuhide Takahashi, CEO of Malibu Japan, a financial consulting firm.
The digital bank arms of Rakuten and SBI are cashing in on the enhancements in the Nippon Individual Savings Account (NISA) program announced in January. The tax-exempt stocks investment program, backed by the government, is aimed at prompting savings-minded Japanese individuals to shift money to investments.
As of July 15, US$1 was equivalent to ¥157.85.