from Patrick McKenzie | by Patrick McKenzie

One of my favorite little facts about the world of paperwork: Japan charges a tax on many forms of contract. The form of it has almost disappeared in English speaking world, but used to be called “stamp tax.” (One reason it disappeared: US hated British imposition of it.)

Anyhow, the tax is collected by selling you a stamp which you have to physically affix to the contract. You could think of it as pre-paying for the legal system causing the contract to be enforced by the state, but of course taxes are taxes and that isn’t maximally truthful.

And thus the thing I find wonderful: bank accounts are not contracts but the government, in its infinite wisdom, considers printed bank account books to be contacts. And so they cost 200 yen (about $1.50) per year. This is customarily paid by the bank in bulk versus via stamps.

And banks hate this because a) customers will absolutely revolt if they charge them this $1.50 and b) banks perforce have very accurate records and millions of bank books in circulation and so the government is very good at collecting this bill.

And thus one of the great drivers for Japanese banks transitioning people to online accounts is that *accounts are not contracts.* If there is no physical printed instantiation of the account, the government assesses no stamp tax. “What?!?” I promise, this is how it works.

And thus many banks are trying to aggressively move people to online accounts by e.g. *buying back their bank books.* The going offer is 1,000 yen. “Positive ROI in year six!”

I am reliably informed that it disappearing from the non-US Anglo sphere was mistaken claim. My bad!

Another incentive on offer is “Normally we only show you 6 months of transactions online but if you opt in to Digital Bank Book [or whatever they brand the offering as] and surrender that legacy paper artifact then we will let you see X years of transactions.”

The bank, of course, knows your transactions from 7 months ago. Back in the day, there were silly organizational and technical reasons to keep the syncing window between core systems and the (at the time) read only online system narrow. Those have gone by wayside but it is…

… still intentionally small window—the bank ships a broken product on purpose—to protect the positioning of their advanced online account which you have to surrender your printed bank book to get.

“This sounds crazily irrational.” Like many things in the world, every individual step of it is quite rational! Only the resulting state is crazy!

“Your online bank account is broken by a combination of tax policy and product choices made to minimize operational costs but good news the bank will partially unbreak it for you if you make a legal election which has positive tax consequences for them.”

Interestingly this is considered particularly galling by banks because market practice in Japan is far more tolerant of accounts with near zero balances and near zero associated revenue than in e.g. the U.S.

And if you as a bank attempt to defect from that market practice vis true retail customers, your customers will revolt *and* you will not endear yourself to some very serious people in Tokyo who consider access to the banking system to be just shy of an enforceable human right.

“What does an account in active use with near-zero balance look like?” My daughter, age 8, has an account opened at a particular bank to deduct her school’s quarterly fee for meals, which is less than $100. They specify the bank because autodebits are a priced service in Japan.

And so the school doesn’t let you use an account at any bank for the autodebit. They want one in the name of your minor child from the same branch the school banks at. And so this branch has thousands of accounts with < $100 in them for literal children. Most lose money.

(Autodebits from the same bank / same branch are priced much more favorably than interbank debits and sometimes more favorably than same bank / different branch.)

And another Fun Compliance Fact: Lillian is legally obligated to report the peak balance of that account to the Financial Crimes Enforcement Network every year, because the U.S. believes Americans with accounts abroad may be up to no good and therefore requires this by law.

(I push the buttons for her, for obvious reasons.)