Cashless payments, such as credit card payments and mobile payments, have become deeply ingrained in our daily lives, and a wide range of payment methods are now used daily for online shopping. However, because older generations might be less familiar with these payment methods, businesses need to provide payment solutions that cater to all customer segments, including seniors. Bank transfers are one such option; as a payment method that anyone with a bank account can use, bank transfers still enjoy considerable support, even in environments where cashless payments are highly active.

This article explains what Japanese businesses should know when incorporating bank transfer payments into their business, including the benefits of implementation, as well as the challenges and solutions involved when entering into individual contracts with banks.

What’s in this article?

• Usage rate of bank transfer payments
  
• Benefits of adopting bank transfers
  
• Challenges in reconciliation for bank transfer payments
  
• How to implement bank transfers
  
• How Stripe Payments can help
  

Usage rate of bank transfer payments

First, let's look at the usage rate of bank transfers as a payment method, using data from the Ministry of Internal Affairs and Communications as a reference.

According to the data, the usage rate of bank transfer payments from in-person bank counters and ATMs in 2023 was 23%. While this figure is significantly lower than the 76.7% for credit card payments, it is higher than the usage rates for internet banking transfers (21.9%) and cash on delivery (17.8%).

While the usage rate of cash on delivery decreased from 20.5% to 17.8%, bank transfers held steady at 23%, the same level as the previous year. This suggests that demand for bank transfers remains strong.

According to information published by Nikkei Research, many generations prioritize factors such as “convenient ATM locations” and “good branch locations” over “ease of use of internet and mobile banking.” This research clearly demonstrates how important ATM and branch locations are to customers when choosing a bank.

The statement “branches are in good locations” was cited most frequently by respondents in their 60s and 70s, suggesting that these generations have more frequent occasions to use banks compared to other age groups. Of course, the reasons for visiting a bank vary from person to person, but bank transfers are likely one reason why people in their 60s and 70s visit banks.

Benefits of adopting bank transfers

When businesses introduce bank transfers as one of their payment methods, they can enjoy the following benefits:

Support for a broader range of customers

For customers, the ability to choose the payment method that best suits them is a major advantage. Especially in today's world of diverse payment options, there’s concern that customers might abandon their purchases if their preferred payment method is not available. For example, if a customer finds a product they want on an ecommerce site but discovers their preferred payment method isn’t available at checkout, they might feel reluctant to proceed. This could ultimately lead to cart abandonment.

To avoid losing sales due to cart abandonment, ecommerce businesses need to accommodate the payment preferences of a wider range of customers. For older consumers, in particular, who might be unfamiliar with online shopping, the availability of bank transfers can provide a sense of security, ultimately enabling the business to attract a broader customer base. And supporting bank transfers has the potential to serve not only seniors, but also customer groups that do not hold credit cards.

Short payout cycle

With a bank transfer, the payment is made directly from the customer’s bank account. Therefore, receipt of payment can be confirmed within the next few days, or even the next business day. Compared to credit cards, where the payout can take anywhere from one to several months depending on circumstances, bank transfers offer a significantly shorter cycle, representing a major advantage for businesses.

Challenges in reconciliation for bank transfer payments

When businesses individually contract with banks for bank transfer payments, the increased manual work can actually lead to a higher operational burden for reconciliation. Therefore, when introducing this payment type, carefully consider whether to enter into individual contracts with banks or to move forward using a payment service provider, also called a payment agent. We will provide a detailed explanation later about how to introduce these bank transfers.

When reconciliation becomes a bottleneck

With direct bank transfers to a business's dedicated account, there are concerns that account reconciliation can become a burden for accounting staff. Account reconciliation requires accurately matching the customer's name with the name on the bank transfer, and the invoiced amount with the received amount. Therefore, reconciliation is extremely important in bank transfer settlements and is a task that carries significant responsibility. Businesses receive payments from a large number of customers daily, so this reconciliation process can consume a tremendous amount of time and effort.

For example, the name of the person who made the bank transfer might not always match exactly with the name of the person who placed the order on the ecommerce site. Specific examples include:

• A family member made the transfer, so only the last name matches.
  
• Although the order was made under a company name, the payment was made by an employee, resulting in a discrepancy between the purchaser name and the account holder name.
  

Discrepancies can also occur between the invoiced amount and the amount received if the customer deducts the transfer fee when making the payment.

When bank transfer payments require manual reconciliation involving time-consuming and meticulous verification work, they become a labor-intensive process for the employees responsible for reconciliation.

For bank transfers, the goods or services are generally provided after the customer’s payment has been confirmed. However, if the reconciliation process does not proceed smoothly, delays can occur not only in confirming payment but also in detecting payment errors such as outstanding payments or underpayments. This could adversely affect the subsequent product shipping process. Therefore, to reduce the burden of reconciliation work, it’s important to implement measures such as introducing a system that eliminates the need for manual reconciliation.

Solutions to reduce workload burden

One solution to reconciliation bottlenecks is the virtual account generation function provided by payment service providers such as Stripe. This function generates a dedicated virtual account for each customer when accepting their first bank transfer, and assigns a unique virtual account number to each one. With a virtual account, specific invoice amounts are assigned within the account alongside customer information. When payment is deposited into that account, the virtual account number automatically triggers the reconciliation. In essence, this eliminates the need for manual reconciliation work.

By using a system that reduces the burden of reconciliation tasks, payment errors can also be detected quickly, resulting in a comprehensive solution for the challenges businesses often face with bank transfer payments.

How to implement bank transfers

There are two methods for implementing bank transfers: contracting directly with banks or using a payment service provider.

Contract directly with banks

With this method, you first open a business account at a bank and then have customers make direct transfers to it.

To open an account, you’ll need to bring the required documents (for corporations: certified copy of the corporate registry, articles of incorporation, seal registration certificate, and representative’s identification) and complete the opening procedures at the bank counter. Some banks also accept online applications. If you’re a sole proprietor, you can apply with your personal identification card, personal seal, and a copy of your business registration form. However, regardless of whether you’re a corporation or a sole proprietor, you should confirm in advance what documents are required for opening an account at each bank. Also, after opening your account, make sure to set up internet banking.

After opening an account, you must establish a system for invoicing so you can receive payments from buyers. Issuing invoices is one part of that system. Ensure that all the required elements of an invoice are accurately stated, including bank transfer details, payment due date, transaction details, and transaction dates. This helps prevent issues such as buyers being unable to make payments.

When using the individual contract method, since no payment service provider is involved, you have to handle everything yourself, from contracting with banks to building your operational system and setting up in-house processes. While it's true that not using a payment service provider eliminates transaction fees, this approach requires you to establish your own workflow for tracking and verifying payments. This could lead to an excessive workload for your accounting staff.

Use a payment service provider

To minimize the burden on accounting staff, using a payment service provider is recommended. Payment service providers offer various services that support the optimization of payment infrastructure and the creation of a seamless payment environment, which can significantly reduce the workload associated with implementing new payment methods.

In particular, as explained earlier, bank payments present challenges with reconciliation. However, by using a payment service provider, all aspects of payment management, including reconciliation, are automated through the system, thus eliminating any reconciliation bottleneck.

In addition, various payment methods such as credit card payments and convenience store payments, can be handled through a single payment processing company, and sales and customer information can be centrally managed. This enables businesses to significantly improve back-office operations.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
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• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.