The inability of most automated teller machines at Japanese banks to accept foreign credit cards has long irritated tourists and short-term foreign residents in a country where cash still plays a key role in everyday life.
Industry watchers say little has been done to rectify the problem, which not only dents Japan’s attractiveness to foreign tourists but also gives rise to criticism that the nation’s financial industry is not playing fair, since overseas ATM networks accept credit cards issued in Japan.
“It is absolutely a free ride,” said Daniel Lintz, a member of the Banking and Finance Subcommittee of the American Chamber of Commerce in Japan and director of corporate communications for Visa International Asia Pacific Ltd.
Earlier this month, the ACCJ urged the Financial Services Agency to open up Japan’s ATM networks to other countries and, as a prerequisite, upgrade their security systems to international standards, including a block cipher called Triple DES (data encryption standard), which is three times as effective as the DES they currently use.
The chamber issued a similar statement in November 2003, but there was no official government response, Lintz said.
Prime Minister Junichiro Koizumi has pledged to double the number of foreign visitors to Japan to 10 million by 2010 under the Visit Japan Campaign, partly to help stimulate regional economies.
But most ATMs in Japan are designed to scan the magnetic data strips on the front of cards and generally cannot pick up the data that is only on the reverse side, as in the case of credit cards issued overseas. Also, Japan’s ATM networks are not compatible with global networks.
The only option for holders of credit cards issued overseas is to withdraw cash from the ATMs of a handful of Japanese banks and credit card firms that accept them or those run by Citibank or Japan Post.
Juan Enrique Ordonez Arnau, who came to Japan five months ago and teaches Spanish in Tokyo, is among those having a hard time withdrawing cash.
One day, the 25-year-old Spaniard tried ATMs at three Japanese banks in the Shinjuku district, only to find they did not accept his credit card. After a one-hour struggle fiddling with the machines, talking with bank managers and filling out forms, he finally managed to extract cash from his bank account in Valencia.
“You need (to do) too much paperwork (to get cash over the counter) and (the forms) are all in Japanese,” he said. “I speak some Japanese and English, but still it took one hour to find that the ATMs did not accept my card. For people who don’t speak either language, it is almost impossible to withdraw money.”
If the government wants to invite more tourists, it has to take some remedial steps, he said.
Such gripes are common.
“Foreign tourists often come to this tourist information center, asking where they can withdraw cash with their credit cards,” said Maiko Endo, a spokeswoman for the Japan National Tourist Organization, which runs a tourist center in Tokyo’s Yurakucho district.
“We tell them that they can do so at ATMs at nearby post offices.”
In 2000, Japan Post launched a service that allows holders of international credit cards to withdraw cash through its ATMs. Such cards are now accepted by the more than 26,000 ATMs and cash dispensers at post offices nationwide.
Citibank, for its part, operates 93 ATMs in Japan that accept international credit cards.
But there are at least 120,000 ATMs and cash dispensers operated by private financial institutions in Japan, including IY Bank Co., whose machines are located primarily at Seven-Eleven convenience stores. Most are only linked to one domestic network.
Shinsei Bank sees the situation as an opportunity.
As the successor to Long-Term Credit Bank of Japan, which went bankrupt in 1998, Shinsei Bank’s computer network is new. As a result, the cost of upgrading its ATMs is likely to be substantially lower than that of Japan’s established megabanking groups, according to Takuya Hamaie, general manager of Shinsei’s channel planning division.
“We hope that in one year, all 250 of our ATMs will accept such cards,” Hamaie said, noting that about 40 Shinsei Bank machines currently accept credit cards issued overseas.
Industry observers say the main reason most Japanese banks are reluctant to update their systems and join global ATM networks that require higher standards of security is the huge cost involved.
“The number of foreign tourists and the number of times they withdraw cash at ATMs are limited, while it would cost millions of yen per machine to update the domestic network,” an industry insider said on condition of anonymity.
The FSA will conduct research on the locations of and demand at ATMs that accept international credit cards. A senior agency official said, however, that it is not planning to expose the domestic ATM network to globally open ones for the time being.
But Lintz of the ACCJ argued that networks that are more open would be beneficial not only for tourists but also for the banks themselves, as it would enable them to expand their global operations.
If Japanese banks want to grow, they need to upgrade their security systems — not just those for services used by customers such as for ATMs, credit cards and international remittances, but also those for their back-end systems, including host computers — to match those of the global networks.
“The future of Japan depends on financial services, since China and South Korea are gaining competitiveness in manufacturing,” Lintz said. “To survive the situation, Japan should become a leader of global finances.”