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Banks trying to cut branches, number of ATMs to reduce costs

Workers focus on their jobs at the administrative work center of SMBC Corp. in Tokyo's Koto Ward on July 26, 2018. (Mainichi)

TOKYO -- The office is huge, with a floor space about half the size of a soccer field, located on the fourth floor of a building in Tokyo's Koto Ward. Work desks fill the space as far as the eye can see, with some 600 workers handling paperwork and computers. This administrative work center was opened in April by Sumitomo Mitsui Banking Corp (SMBC).

Applications for opening accounts, making cash transfers or changing addresses are all scanned at branches and transmitted to this center, where workers feed the data into computers and complete procedures -- something previously done by branch clerks. About 108 of some 440 SMBC branches rely on this facility for the processing of their paperwork.

"We want to reduce paperwork at the branches and increase space for customer consultations and cut down overheads by shrinking branch sizes," explained Hikaru Maruyama, who heads the SMBC department setting out strategies to design and manage "channels" to reach customers.

What prompted the megabank to introduce the new approach was the experience of senior executives on business trips in North America, Europe and Asia three years ago, according to Maruyama. They witnessed that traditional branch work to handle paperwork had disappeared at South Korean banks, and this led to the realization by the executives that they will not survive global competition unless they proactively respond to potential changes in the future.

Following their return from the overseas inspections, the megabank became the first in Japan to introduce a plan to consolidate paperwork at their branches into 10 regional administrative centers across the nation by fiscal 2019. Up to 20 percent of clerical workers can be reduced through the consolidation, SMBC expects.

Meanwhile, Resona Bank is trying out a new type of branch inside the Ueno Marui department store in Tokyo's Taito Ward. It is located on an apparel floor, and has just a table, chairs and a cabinet. The "branch" opened in March specializes in offering financial counseling to young customers to whom the bank has limited access. It is open on weekends and holidays, as late as up to 8 p.m.

The bank made Wednesdays a holiday for its Itsukaichi branch in the western Tokyo city of Akiruno. The move was intended to maintain its network of branches in the area by rotating personnel. Commenting on the move, Hiroshi Mori, who heads the Resona channel planning office, said, "We downsized the branches while maintaining contacts with customers. We will redistribute our branches according to customer needs."

These changes are proceeding because the number of customers visiting banks is sharply decreasing as money transfers and address changes can now be completed over the internet. Some banks are also cutting down on the number of their automatic teller machines (ATMs) nationwide. MUFG Bank Ltd. and SMBC are in talks to standardize their ATMs. One cash dispensing unit costs approximately 7 million yen for maintenance per year, including security and transportation expenses. "We can cut overheads by pushing for cashless transactions and reduce the number of ATMs," said a Mizuho Financial Group Inc. executive.

Streamlining a network of regional offices and branches constructed over the years is no easy task. A top executive of a major bank said, "Whenever newspapers report offices are closing, we get phone calls from the areas mentioned." ATM standardization is a "big challenge" too, according to another senior banking official. "The machines have different specifications, so coming up with a single user interface can be difficult."

Banks used to make money by placing branches at prime locations in front of railway stations, collecting as many deposits as possible and lending to as many corporations as possible. That business model is not working as the banks have fewer lenders and are burdened with high cost branches. Ken Takamiya, an analyst at Nomura Securities Co., pointed out, "The profit-making models of banks are lagging behind the changes of the times, and now they have to pay for that. Banks must speed up their efforts to reduce the number of branches and ATMs."

(Japanese original by Business News Department financial news team)

This is Part 3 in a series.

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