TOKYO -- "Welcome to our bank!" chime the three uniformed clerks as customers enter Mizuho Bank's branch in Tokyo's Tanashi neighborhood.

The friendly, highly experienced clerks stand ready to help customers fill in the various forms required to open an account, make a large withdrawal, transfer funds or take out a loan. Even in the digital age, such tasks can require plenty of time-consuming paperwork. To confirm their identity, customers are also required to present a hanko, or personal seal.

Once the forms are filled out, the customers take a paper ticket and wait for their number to be called by one of the handful of tellers sitting behind the counter, who handle simple requests on the spot. More complicated jobs are handed over for processing by a dozen or so other clerks sitting behind them.

These days, however, most customers walk straight past the three clerks at the entrance and toward the bank of eight ATMs or three machines for updating passbook records. Many customers never make it into the branch at all, choosing instead to do their banking online.

But despite the popularity of internet banking, the retail bank experience in Japan appears little changed from a decade or two ago. Personal attention to the customer and a thick, sturdy passbook are still regarded as hallmarks of quality in Japan's banks, even if there is less demand for such service.

Branches of Japan's megabanks are a ubiquitous sight in Tokyo. (Photo by Ken Kobayashi)

There are signs this is beginning to change, however. The country's three biggest banks have announced plans to close branches, eliminate thousands of positions and introduce more automation -- radical steps in an industry where employees expect to have jobs for life. But critics warn they are still not moving quickly enough to prepare for the next wave of digital disruption heading their way. One senior executive says Japan's banks are experiencing a "quiet crisis."

Raymond Spencer, senior vice president at Moody's Investors Service in Japan, says retail banks need to be run more like convenience stores. "Banking is not a complex business, particularly for retail. So there is a lot of competition and it has become a commodity," he said.

The banks' short business hours, typically from 9 a.m. to 3 p.m. on weekdays, are an anachronism in the digital age, he says. "Why are branches open when nobody can visit them?"

At Bank of Tokyo-Mitsubishi UFJ, the nation's largest bank, the number of customers who visit its brick-and-mortar branches has dropped 40% in the past decade, while the number of internet banking users has risen 40% in the last five years.

The mismatch is becoming difficult to overlook for an industry bearing the twin burdens of low growth and low interest rates. With a shrinking population, the fall in customer numbers is only expected to accelerate. Yet the number of bank branches in Japan has changed little in the past 10 years, at around 13,500. With each branch typically staffed by about 30 clerks, shrinking or eliminating them will mean cutting a lot of positions.

Toshinao Sakai, a former executive at Mitsui Asset Trust and Banking (now Sumitomo Mitsui Trust Bank), described the problem succinctly: "There are too many banks in Japan."

This legacy infrastructure is weighing on the banks' profitability. In the nine months through December, core profit at the top five Japanese banks declined an average 22% from the year before. At the same time, Japanese companies in other industries enjoyed the benefits of an improving economy, racking up record profits across the board.

For banks, low profitability means less capital, or a lower cushion against future downturns. According to Moody's, Japanese banks' return on assets stood at 0.3% in fiscal 2016, compared with 0.7% for Australia, 0.8% for the U.K. and 1.0% for the U.S. Only banks in Germany were worse, at 0.2%.

In October, the International Monetary Fund took the unusual step of naming nine global banks that it says are likely to struggle to remain sufficiently profitable. Japan's top three banking groups -- Mizuho, Mitsubishi UFJ and Sumitomo Mitsui -- are on the list.

Besides sagging profits, the banks face a wave of further technological disruption as consumer finance increasingly melds with mobile technology. U.S. consulting company KPMG predicts that global technology companies will dominate banking in the future. By 2030, banks will be relegated to behind-the-scenes roles, such as creating financial products or operating and maintaining massive transactional infrastructure as a utility, the consultancy forecast in a recent report.

KPMG predicts the disappearance of large parts of the traditional bank, such as branches, sales force and the back office. "The transition would be painful and costly, to say the least," the consultancy said.

"Black Ships"

The Japanese banks' predicaments did not start yesterday, though.

Growth in loan demand started slowing almost as soon as Japan's double-digit growth began to cool off in the 1970s. The property bubble of the late 1980s helped keep the banks going until it burst in 1990, triggering a banking crisis. The banks needed to recapitalize themselves and collect more deposits to remain solvent, so adding more branches made sense.

Employees at Sanwa Bank, a predecessor to Bank of Tokyo-Mitsubishi UFJ, count money at a Tokyo branch in 1994. (Photo by Naomi Ono)

In the meantime, the banks made their own efforts, partly in response to prodding from the government, to reduce costs through a series of mergers that cut the number of money-center banks from 13 in 1990 to four today.

Once the banks got fully recapitalized by around 2005, new deposits became less of a need. On the contrary, they had added to the burden of finding investments in a slow-growing economy. Still, the banks were able to earn returns of at least 1% risk-free by investing in Japanese government bonds, as they had to pay very little to depositors in interest.

Things changed when Prime Minister Shinzo Abe came into power in late 2012, however. Abe pushed for unprecedented monetary easing in an attempt to stamp out deflation. Under Bank of Japan Gov. Haruhiko Kuroda, recently nominated for a second term, the central bank embarked on a massive quantitative easing campaign that drove yields on government bonds well below the 0.6-0.7% range the banks needed to cover branch operation costs.

In January 2016, Kuroda introduced negative interest rates on the surplus cash that banks were parking at the central bank. At the same time, the BOJ decided to guide 10-year interest rates toward 0%. The theory was that banks would be forced to put money to work, stimulating the economy in the process, if it cost them to simply hold on to it.

The policy has shaken the banks' business model of borrowing at low rates and investing at higher rates to pocket the margin. The shock was especially difficult for banks in regions where population decline was more acute and opportunities for lending were more scarce.

A sign advertises the Alipay payment service in Tokyo on Feb. 8. The rapid spread of the Alibaba-backed business has spooked Japanese bankers. (Photo by Ken Kobayashi)

As if negative interest rates weren't enough, new threats began to come from overseas. In the 19th century, such threats came from Western colonial powers. In the 21st century, they are coming from China.

An affiliate of Chinese e-commerce giant Alibaba Group Holding, Ant Financial Services Group operates the Alipay service, which allows users to make payments with a mobile phone. The sheer speed of Alipay's growth has left Japanese bankers in a panic.

Like in Japan, mobile payments were nearly nonexistent in China in 2013. By 2016, however, they came to account for more than $3 trillion, with Alipay and its rival WeChat Pay, run by Tencent Holdings, dominating the industry.

It didn't stop there. Ant Financial now offers saving, investment, lending, insurance and virtual credit card services, becoming more like a financial conglomerate. Its Yu'e Bao investment fund had attracted 1.58 trillion yuan ($250 billion) in funds from individuals as of the end of 2017, providing its 370 million account holders with a savings service with returns of more than 4% last year -- much better than bank deposit rates available in China.

Now Alipay is heading overseas for further growth. Already, Ant Financial partners with mobile payment service operators in India, South Korea, Thailand, Indonesia and the Philippines -- and it is eyeing Japan. Alipay envisages a future in which its users will be able to shop anywhere in Asia with a single Alipay account.

For Japanese banks, Ant Financial is "a serious threat," said Daisuke Yamada, senior executive at Mizuho Financial Group, in a Nikkei forum last autumn. He likens Ant Financial to the "Black Ships" -- a reference to the American warships that forced feudal Japan to open up to international trade in 1853.

Banking by videophone

The Japanese banks are trying to prove their doubters wrong.

Nobuyuki Hirano, president of Mitsubishi UFJ Financial Group, Japan's top banking group, announced plans in September to "slash the amount of labor equivalent to 9,500 employees." The group's commercial bank, Bank of Tokyo-Mitsubishi UFJ, has about 40,000 employees on its payroll.

It was the first time that Hirano has publicly referred to a concrete restructuring target for the group. The mention of cuts, to be achieved by 2023, was all the more surprising since Bank of Tokyo-Mitsubishi UFJ is thought to be in the best financial shape among Japan's three megabanks.

The plan is to convert up to 100 of its 516 retail branches into automated branches, where services are provided through an ATM or remotely through videophone rather than over the counter.

Rival Mizuho Financial Group quickly followed suit, announcing a plan on Nov. 13 to eliminate 19,000 positions over the next 10 years, as the group is set to close 100 of its some 500 bank branches. Many of the remaining branches will be converted into smaller offices staffed by fewer people.

In all, the three megabanks said they are going to eliminate 32,000 positions.

Clerks do paperwork after closing time at a Tokyo bank on Feb. 20. (Photo by Ken Kobayashi)

Personnel costs are by far the biggest expense item in a bank branch. Mizuho Financial Group, for instance, has some 80,000 full-time and part-time employees, most of whom work in branches. Full-time regular employees at the three largest banks were paid an average 7.77 million yen ($73,270) in salary a year as of the end of March 2017.

But those banks stress that while they eliminate positions, they will also create new posts in the fields of asset management and digital banking, and seek to avoid layoffs. Further cost cuts will be achieved through attrition and hiring cuts.

In the U.S. and U.K., where shareholder interest is paramount, restructuring tends to be more aggressive. According to Reuters, banks and building societies in the U.K. have been closing branches at a rate of around 300 per year since 1989, and the pace has accelerated in recent years. In 2017, banks were set to shutter a record 762 branches. In the U.S., the number of bank branches shrank by more than 1,700 in the 12 months ended in June 2017, the biggest decline on record, according to a Wall Street Journal analysis of federal data.

Even as the banks seek to slash costs, they are looking for growth outside of Japan -- mainly by acquiring rivals in emerging Asia.

Bank of Tokyo-Mitsubishi UFJ has been especially keen on such acquisitions. In 2013, it acquired 72% of Bank of Ayudhya, Thailand's fifth-largest bank. In 2016, it bought a 20% stake in Security Bank of the Philippines, and in 2017 it announced a bid to acquire a majority of Bank Danamon Indonesia, the country's fifth-largest commercial bank. MUFG President Hirano cited favorable demographics in Indonesia as a reason for its investment in Bank Danamon.

The banking business is fundamentally dependent on demographics: the bigger the population, the more demand for mortgages and business loans. When the population goes down, loans can decrease faster than banks can make up through cost-cutting.

"Too many banks are chasing too few customers" in Japan, said former bank executive Sakai. So it makes sense to pursue a blue ocean strategy, even if that means having to deal with borrowers they have less experience with.

Between fiscal 2012 and 2015, overseas loans at the three megabanks increased by as much as 18% a year, to make up 33% of the total loan book, up from 23%, according to Moody's.

J. Brian Waterhouse, senior research analyst at Windamee Research, said he expects Japan's banks to continue their Asian expansions as long as loan demand from domestic clients remains weak and interest rates remain ultralow. Southeast Asia remains attractive as a destination for them, he said.

"The outlook for growth in the economic zone spanning Vietnam, Cambodia, Laos, Thailand and Indonesia remains potentially extremely strong, with a deep pool of young workers who are upwardly mobile, tech-savvy and increasingly well-educated but still remarkably underbanked," he said. "The big question for Japanese banks remains how to tap into that deep pool of potential new banking clients."

Greener pastures

The prospects of fewer jobs at the banks' domestic operations are already sinking into the minds of clerks.

At job-placement agency Recruit Career, the number of job-hunting bankers who registered with the agency increased about 30% to about 10,000 in the April-September fiscal first half of 2017. The majority of those were 35 or younger.

Junichi Kanda is one of those who have left the banking industry for greener pastures. A former official of the Bank of Japan, Kanda joined fintech startup Money Forward recently as an executive responsible for business development.

He says his pay has gone down, but he wanted to take a risk. If it pays off, his income will go up on a long-term basis.

He hopes that an example like his will lead more people to follow suit and help change Japan's rigid labor market. "The banking industry has appeared stagnant in terms of innovation recently," Kanda said. "By joining hands with people from the technology sector, bankers may be able to create new services and businesses again."