Japanese banks are upgrading their automated teller machine networks, and U.S.-based vendors see dollar signs.

Japan has lagged other industrialized nations in the scope and capacity of its ATM systems. But several recent developments have led U.S. executives to say that the major Japanese banks, which rank among the largest in the world, are making a serious push toward modernization.

Sanwa Bank Ltd. and Sumitomo Bank Ltd., both of Osaka, announced last week they would begin keeping some ATMs open 24 hours a day next year-a major change in Japanese custom. Those banks also said that by yearend they would join Cirrus, the international network owned by MasterCard International of Purchase, N.Y.

The moves come in part as a response to Citibank's introduction of round-the-clock ATMs to the Japanese market. That change, along with the Citicorp unit's links to Cirrus, has forced Japanese banks to scramble to offer the same conveniences or risk losing customers, analysts said.

Japan had about 24,000 ATMs at yearend 1996, according to the Oxnard, Calif.-based Nilson Report, but only a handful offered 24-hour service or access to shared networks. More than 400 Japanese ATMs are linked to the Plus System, the global network owned by Visa International of San Francisco.

Round-the-clock ATMs require more sophisticated software, specifically a system that can handle transactions at the machines and generate batch and settlement reports on the back end. Though Japanese banks have historically relied on in-house software, the greater demands of full-scale electronic funds transfers will put pressure on them to use outsourcing, said Gary Craft, an electronic commerce research analyst for BancAmerica Robertson Stephens in San Francisco.

"Now you have 24-hour ATMs and you have the movement with interoperability with the U.S. networks," Mr. Craft said. "The complexity has stepped up several-fold."

Mr. Craft predicted the recent Japanese ATM advances will start a domino effect, creating demand for more sophisticated software and leading to lucrative contracts for U.S. developers.

"The need for that has just blossomed," Mr. Craft said.

But some observers surmised that the Japanese banks-seven of which rank in the top 10 worldwide-would be slow to let outside vendors, especially foreign ones, supply them with technology. The banks would probably rely on local support until they come up against shortcomings, said Dan Heimann, director of strategic marketing for Applied Communications Inc. of Omaha, a leading supplier of EFT software.

"They'll have a pain threshold in 24-hour banking," Mr. Heimann said, adding that the Japanese market has "long-term potential" for Applied Communications.

That threshold also applies to the challenges involved in linking to an international network like Cirrus, which requires participants to stay abreast of technical and rule changes.

"Keeping up with all that so you get the best interchange can be a very costly process just in terms of hourly resources," Mr. Heimann said. "We provide those resources off-the-shelf versus writing them from scratch."

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