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Finance GreenWatch » 1. BANK » FSA to allow bank-IT firm alliances(Japan News)

FSA to allow bank-IT firm alliances(Japan News)

The Financial Services Agency will allow banks to do business with online shopping firms and companies that manage electronic money, through IT-related subsidiaries, according to sources.bankatmキャプチャ

If banks do business with such companies, bank cards could then be equipped with e-money functions. Users will be able to load value onto the cards from their bank accounts at an ATM, making their shopping more convenient.

The FSA plans to submit a bill to revise the Banking Law during the ordinary Diet session next year and have part of the new law put into force the same year.

Under the current law, a bank, in principle, must limit its capital contribution ratio in a company in sectors other than banking to up to 5 percent.

This rule is designed to prevent banks from failing in businesses other than banking and having their overall corporate management deteriorate, which would have an adverse impact on the entire financial system.

As online shopping services and e-money are now widely used, however, pressure has grown to allow banks, whose main business includes settlements, to enter such sectors.

By allowing banks to work in such sectors, problems concerning payments and receipts for goods and services would be reduced, which many bank card holders could find more convenient, according to the FSA.

The FSA assumes a bank will participate in the management of an online shopping service operator by taking a stake in, or setting up, an e-money business enterprise.

However, the revised law will include certain restrictions so that banks will be permitted to own only information technology-related companies that deal with finance-related businesses.

The agency plans to hash out the details of the new system soon.

If banks are allowed to buy IT-related companies with technologies that secure safe money transactions, they can enter new businesses, including e-money management. Such a collaboration could make it easier for consumers by making each bank card multifunctional, allowing users to load e-money on the card at ATMs while using it as a credit card.

The law revision will likely boost business alliances between banks and IT firms in such areas as settlement services for online shoppers. Possible business collaborations will help banks reduce their system management costs — a heavy financial burden on their management.

For example, a major bank and a major IT-related company could jointly launch an IT start-up that handles system management, and the new company could offer services for multiple regional banks to lower their financial burdens considerably.

The agency’s decision has been welcomed by the banking industry, with one megabank official saying, “We appreciate the regulation easing as it could lead to an expansion of our settlement services.”

Banks are set to examine how they can utilize the new system for their businesses.

However, they should take care not to destabilize their core banking business through an unsuccessful alliance with an IT firm. One major financial institution’s business failure could have an extensive adverse impact on the real economy — as can be seen in the bankruptcy of Lehman Brothers that triggered the global financial crisis.

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