The Bank of Lawson, or when your conbini suddenly becomes a bank branch
Following in the footsteps of Seven & I Holdings Co. and Aeon Co., Lawson obtained a banking license from the Financial Services Agency in August 2018, and started operating in October, allowing it to take in-house some of the financial services currently operated in cooperation with other banks, such as cash deposits, withdrawals and transfers.
In a presentation at the IBM “Finance x Digital Shift 2019” conference, President Masashi Yamashita stated that ATMs have always been central to Lawson’s business, as the first machines were installed almost 18 years ago. However, ATMs are not sufficient to meet the financial needs of the future, so the goal is to create new services on top of the existing ATM infrastructure.
When he received the actual license from the Financial Services Agency on August 10, 2018, Yamashita-san said, he was a little disappointed that it was just a plain sheet of paper. The minister told him “Banks are having a hard time making money, so try something new”, as way of encouragement.
Lawson Bank started operations on October 15, 2018, supported by the above television ad by two popular Japanese comedians. The prepatory company to obtain the license was established in November 2016, so it was close to a two-year process overall (this mirrors LINE’s expectations in establishing their Mizuho joint venture as described in “The LINE financial ecosystem is taking shape”). MUFG holds a 5% ownership in Lawson Bank. Initially, the bank will provide two services:
- The existing ATM Business got fully absorbed, with the aim to strengthen the 24/7/365 service functions for individual customers of affiliated financial institutions
- Launch of a retail business: provide deposit, credit card (launched in January 2019 after obtaining an additional license under the Installment Sales Act in Japan), internet banking and other services for customers including Lawson customers, franchise owners, and store crews
According to Yamashita-san, 90% of what financial institutions do is the same, it is the last 10% that really differentiate the brand. The challenge for a retailer like Lawson is that they serve 350,000 customers per day, and they need to make it satisfactory to all customers no matter what they desire.
Lawson operates more than 13,000 ATMs, which are used by 200m people per year. In addition, there are more than 100 financial institutions that connect directly to Lawson’s core banking system. Lawson Bank itself is quite small in scale, it has only 150 employees and limited capital, so it is not looking to deploy balance sheet to scale. At the same time, the bank does not have to do everything by itself, it is very open to enter into partnerships.
Yamashita-san admits that increasing the number of ATMs in a cashless society might be viewed as an oxymoron. But is indeed Lawson Bank’s strategy to increase their number as fast as possible, continuing the past trend (the number of ATMs increased from 7,000 machines in 2010 to 13,405 at the end of 2018) and broaden the services provided through it. With a shrinking population, especially in rural areas, and increasing cashless payments, one Lawson ATM can replace machines from multiple banks, allowing them to decrease the number of branches and ATM locations.
Historically, Lawson Bank ATMs have had a lower operating cost than bank ATMs, as they have only limited functions. In addition, with 13,000 cash points, Lawson enjoys economies of scale over nearly every competitor. Even if some functions are not supported, such as bank book updates or depositing of coins, this is becoming very much acceptable for the younger generation who wants to be digital in any case.
The implementation cost to achieve all this is not very substantial according to Yamashita-san. Essentially, Lawson will build an additional layer on top of the existing network to connect with mobile and establish a new core banking system for its own current and savings accounts. This setup will support all different cashless payment methods in a digital world. Leveraging that new functionality, Lawson also aims to release its own payment app in time for the consumption tax hike in October (and the possible discounts currently discussed for cashless payments), with a full roll-out planned for 2020.
See also: Where will all the ATMs go?
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