Japanese Banks’ Payment Clearing Network

Zengin-Net Initiatives Relating to System
Development in the Banking Sector Aimed at
Promoting Continuous Payment Clearing
Innovation

January 2017
Japanese Banks’ Payment Clearing Network(Zengin-Net)

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Japanese Banks’ Payment Clearing Network

Contents
1. Overview of Zengin-Net

P3

2. Initiatives Relating to System Development in the Banking Sector Aimed P4
at Promoting Continuous Payment Clearing Innovation
3. What Is the Zengin-Net Expert Panel?

P5

4. Revamp of Zengin-Net Expert Panel

P7

5. Future Operation of Zengin-Net Expert Panel

P8

6. FY2016 Initiatives

P11

Results of Zengin-Net Initiatives Aimed at Enhancing Payment Clearing P12(for Reference)2

Japanese Banks’ Payment Clearing Network

1. Overview of Zengin-Net• The Japanese Banks’ Payment Clearing Network (Zengin-Net) was established as a fund clearing agency1 based on the Payment

Services Act.
• It operates the Zengin Data Telecommunication System (Zengin System), which is a core system for carrying out bank transfers,
and the Domestic Fund Transfer System, which serves as a mechanism/system for bank transfers.
• The Japanese Bankers Association (JBA) is the sole member of Zengin-Net.
• Bank presidents are selected and appointed as the part-time directors of Zengin-Net.

Overview of Zengin-Net

ATMs, online banking,
etc.

Name

•

Japanese Banks’ Payment Clearing Network

Members•

Japanese Bankers Association

Transfer request
Account deposit

1 board chairman (full-time)• 10 directors (1 full-time, 9 part-time)*Bank presidents are appointed as part-time directors• 2 auditors (1 full-time, 1 part-time)•

Officers•

Date founded

Location•

Incorporated on April 1, 2010, and began operations on October 1 of the same year
(A licensing system was established for the fund clearing business under the Payment
Services Act, and after obtaining a license for Zengin-Net, the JBA, known at that time as theTokyo Bankers Association, transferred control of the business to Zengin-Net.)

Bank

Bank

Transfer instruction

Chiyoda Ward, Tokyo

Transfer instruction

Zengin-Net/
Zengin System

Overview of Zengin System
Number ofParticipating Banks(as of the end of
November 2016)
Transaction volume(during 2015)

Inter-bank settlement

Direct participants (clearing participants): 144 banks• Indirect participants (financial institutions outsourcing settlement agency): 1,152 banks(Total: 1,296 banks)(covers almost all domestic depositary financial institutions)••

Total amount of transactions during 2015: Approx. 1,581,410,000 / Total value: Approx. 3,110
trillion yen(Amount per day: Approx. 6,480,000 / Value per day: 12,747,400,000,000 yen)

1 Institution that clears credits and debts between banks accompanying

exchange transactions, such as bank transfers

Bank of Japan3

Japanese Banks’ Payment Clearing Network

2. Initiatives Relating to System Development in the
Banking Sector Aimed at Promoting Continuous
Payment Clearing Innovation• In December 2015, a report by the Financial System Council’s Working Group on Payment and Transaction Banking maderecommendations including a revamping of Zengin-Net Expert Panel as part of system development in the banking sector aimed atpromoting continuous payment clearing innovation.
• Based on the above recommendation, Zengin-Net is considering measures for enhancing the Expert Panel’s discussions andproceeding with their implementation.

Details of Recommendations
System Development in the Banking Sector Aimed at Promoting
Continuous Payment Clearing Innovation
Improvements to Zengin-Net’s system should be considered in order tocontinue delivering initiatives that respond to the diversified need for
payment infrastructure services, the necessity of international
coordination, and requests for rapid action. Steady implementation of theaction plans below regarding the infrastructure may be expected toencourage banks to continue pursuing their own proactive efforts.
•

Revamp the current Zengin-Net Expert Panel that was established asa means of collecting feedback directly from users, then set up around table at the JBA for the purpose of holding discussions
between the public and private sectors, including other relatedindustries.

•

Make additional efforts to strengthen the structure when necessary.

Handling of Issues•

Revamp Zengin-Net’s review system(Expert Panel) and enhance its functions
in order to facilitate continuous efforts tofurther improve payment clearing
infrastructure and services•

Based on users’ diversifying needs, solicit
feedback from a variety of perspectives,
including companies, consumers, etc.

•

As a rule, publish summaries ofproceedings externally.

(Excerpt from a report by the Financial System Council’s Working Group on Payment
and Transaction Banking)4

Japanese Banks’ Payment Clearing Network

3. What Is the Zengin-Net Expert Panel? — I
The Zengin-Net Expert Panel was established as a discussion body that identifies timely topics based on its knowledge of significant
environmental changes that affect Zengin-Net (e.g., the review of the Zengin System’s operating hours and measures to expandthem), invites experts with in-depth knowledge of those topics, and holds discussions with them. (It is a revamped version of theFund Clearing System Advisory Committee set up at the time of Zengin-Net’s establishment.)

Purpose of
establishment• To understand the needs of general consumers andcompanies with respect to bank transfers and payment
clearing systems and apply that knowledge to theorganization’s operations

April 2010

• To select and review topics in a flexible, timely manner

October

Process of Establishing Zengin-Net Expert Panel (for Reference)(after this, the Fund Clearing System Advisory Committee met 1 or 2
times per year as an external expert panel)• Experts (selected as needed based on the topic)• Zengin-Net committee chairs, managing director-level
executives from urban and regional banks
Members

July 2014• Board Chair, Executive Director, Director General, etc.
For operational purposes, Zengin-Net committee members andauditors are permitted to take part as observers and working groupmembers as guests (but they may not disclose meeting details).

Once/year• The Fund Clearing System Advisory Committee was revamped tocreate the Expert Panel(one meeting per year in 2014 and 2015)

July 2016
Meeting frequency• Enactment of Payment Services Act, establishment of Zengin-Net• Formation of Fund Clearing System Advisory Committee1• Start of Zengin-Net’s business

Expansion of functions based on Financial System Council’s
recommendations

Topics Discussed by Zengin-Net Expert Panel
2014: “Results of Domestic Survey on Bank Transfers” (research firm)
Individual and corporate needs, market analysis, and discussion based on survey concerning the expansion of the Zengin System’s operating hours, etc.
2015: “Issues Relating to Bank Payment Clearing: Consumer Feedback on Deposits and Transfers” (National Consumer Affairs Center of Japan)
Details of feedback from consumers, suggestions on how to resolve issues, and discussion (informing users about bank transfers and enhancing mechanisms for reducing thenumber of erroneous transfers)
1 Set up based on discussions relating to the enactment of the Payment Services Act (developing a governance structure capable of responding to user needs) by

the Financial System Council and others (see reference materials below).
• Payment Clearing Study Group, “Interim Overview of Payment Clearing-Related Issues (Chairman’s Memo)” (December 2007)• Second Subcommittee, Financial System Sectional Committee, Financial System Council, “Fund Clearing-Related System Development” (January 2009)
Changes to the organization’s operations are applied based on discussion of survey details and presentations from individual experts at Zengin-Net (external
experts had not changed since the Fund Clearing System Advisory Committee was established)

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Japanese Banks’ Payment Clearing Network

3. What Is the Zengin-Net Expert Panel? — II
Past
General Meeting of Members(Members: JBA)
Decisions relating to:• Appointment of executives• Business reports/financial results• Business plans• Income and expenditure budget
documents• Changes to articles ofincorporation

Board of directors(president/CEO level)

Corporate Planning Committee(managing director level)

Working groups(assistant manager level)• Corporate Planning Working Group• Decisions on execution of thecorporation’s business• Risk Management Working Group• Decisions on key mattersrelating to management ofDomestic Fund Transfer
System• Cyber Security Working Group• Future Vision of the Zengin System
Working Group• Instructing committees andworking groups to review issues
as needed

Etc.

Etc.

Reportingof details

Operations and Systems Committee(managing director level)

Working groups(assistant manager level)• Domestic Fund Transfer System
Working Group• Zengin System Expanded Hours
Working Group• Holds discussions and receives suggestions
and recommendations from experts• Reports results to board of directors andapplies them to the organization’s operations

Zengin-Net Expert Panel(experts + managing director-level executives)• 7th-Generation Zengin System
Working Group• Collateral Management Working
Group
Etc.

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Japanese Banks’ Payment Clearing Network

4. Revamp of Zengin-Net Expert Panel•

It is necessary for Zengin-Net to independently and voluntarily take action to understand user needs, and based on thereport by the Financial System Council’s Working Group on Payment and Transaction Banking, it will revamp theExpert Panel’s operation so that it may function more effectively as a means of obtaining direct feedback from users.
• Zengin-Net’s structure will also be enhanced based on the details of initiatives aimed at addressing identified issues.

Revamp Concept•

For the purpose of system development in the banking sector aimed at promoting continuous payment clearing
innovation, Zengin-Net intends to voluntarily pursue a comprehensive ongoing review and establish continuous
improvement initiatives (PDCA cycle) that leverage the Expert Panel.

•Specifically, in light of diversifying payment clearing infrastructure-related needs, increasing demand for rapid
handling of requests, etc., Zengin-Net’s review will be based on the concept of further improving efficiency.
Through seamless coordination between the Expert Panel and working groups, it intends to develop and enhancea framework that enables actual payment clearing services to be handled in a more agile manner.

•

Working groups are discussion bodies comprised of bank employees (assistant manager level) and have more
flexibility than the Expert Panel, which is comprised of executives (managing director-level). Making more efficientand effective use of working groups will make it possible to enhance the Expert Panel’s discussions and topromptly consider actions aimed at addressing issues identified based on the results of those discussions.

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Japanese Banks’ Payment Clearing Network

5. Future Operation of Zengin-Net Expert Panel — I• The Future Vision of the Zengin System Working Group• Based on the results of the Future Vision of the Zengin

will consult a wide range of experts regarding needs andissuesSystem Working Group’s considerations, topics will be
determined and experts invited
Depending on the topic, multiple experts may be invited andthe participation of relevant authorities, the central bank,and general companies may be requested• The Working Group will review topics based on

consumers’ and companies’ needs, domestic andinternational trends, technological innovations, etc.
• Consultation results will besummarized and reported to
the Corporate Planning
Committee, etc.

P

Consultations
by working
groupsD

Discussions
by Expert
Panel• Publishing summaries ofproceedings

System development in the banking
sector aimed at promoting continuous
payment clearing innovation(PDCA cycle)• Identified issues will be

reviewed in depth by theappropriate working groupsA

In-depth review
by working
groups• The review status will be reported to the Corporate

Planning Committee, etc., as appropriate• Additional consultations with experts will also be

considered as needed

Recognition of issues
by committee,
etc.

C• Identifying issues based on
discussions by Expert Panel,etc.

• Priority matters will be decided by the Corporate Planning
Committee, etc., which will instruct working groups toconsider themSpecific matters that require ongoing discussion will beincorporated into the medium-term management plan as
medium- to long-term review issues

Once its feasibility has been verified, the above management approach will be reviewed as needed8Japanese Banks’ Payment Clearing Network

5. Future Operation of Zengin-Net Expert Panel — II
In-depth review
by working groups

After Revamp
General Meeting of Members(Members: JBA)
Decisions relating to:• Appointment of executives• Business reports/financial results• Business plans• Income and expenditure budget
documents• Changes to articles ofincorporation

Board of directors(president/CEO level)

Corporate Planning Committee(managing director level)

A

Working groups(assistant manager level)• Corporate Planning Working Group• Decisions on execution of thecorporation’s business• Decisions on key mattersrelating to management ofDomestic Fund Transfer
SystemC• Risk Management Working Group
Recognition ofissues by committees,etc.

• Instructing committees andworking groups to review issues
as needed• Cyber Security Working Group• Future Vision of the Zengin System
Working Group
Etc.
Consultations
by working groups

Etc.

Operations and Systems Committee(managing director level)

D• Holds discussions and receives suggestions
and recommendations from experts• Reports results to board of directors andapplies them to the organization’s operations

Discussions
by Expert Panel

Zengin-Net Expert Panel(experts + managing director-level executives)

P

Working groups(assistant manager level)• Domestic Fund Transfer System
Working Group• Zengin System Expanded Hours
Working Group• 7th-Generation Zengin System
Working Group• Collateral Management Working
Group
Etc.

• In order to enhance the secretariat structure, 7 people have already been added since last year
• In the future, Zengin-Net’s structure will be enhanced based on the details of initiatives aimed at addressing identified issues

9Japanese Banks’ Payment Clearing Network

5. Future Operation of Zengin-Net Expert Panel — III(Before and After Comparison)
After revamp1

BeforeYear-by-year basis

Ongoing reviews• Topics selected by secretariat asneeded• Working group composed of working-level personnel will consult a wide range ofexperts regarding needs and issues• Activities basically contained within
the same fiscal year

• Results of working group consultations will be summarized and reported to the
Corporate Planning Committee• Topics will be decided and Expert Panel meetings held based on the reports

Operation
Method• Various working groups will be instructed to conduct in-depth reviews of issues
identified based on discussions by the Expert Panel• Matters identified as issues for medium- to long-term review will be incorporated
into the medium-term management plan
• The review status will be reported to the Corporate Planning Committee asappropriate

Members

Banking industry + expert(one person or company, as a rule)

Banking industry + experts (multiple individuals) + public and private sectors

Not publishedPublished

Summaries ofproceedings,
etc.
Meeting
frequency• Depending on the topic, multiple experts may be invited and the participation of
relevant authorities, the central bank, and general companies may be requested

Once/year

Consultations by working groups (multiple times) + Expert Panel meetings• No preliminary consultations byworking groups• Working groups will review topics by holding multiple consultations2

1 Once its feasibility has been verified, the above management approach will be reviewed as needed
2 Held 8 times this year (FY2016)10

Japanese Banks’ Payment Clearing Network

6. FY2016 Initiatives
TimingAction Taken• Consultation meetings with experts held by working groups (8 times this year)

FY2016
Augustto
year-end

Topics for FY2016
1. User expectations with regard to payment clearing services

Wed Sept 7: Payment clearing conditions and issues at a telecommunications company
Tues Nov 1: Payment clearing conditions and issues at an e-commerce company
Thurs Nov 24: Expectations of individual users with respect to payment clearing (presentation by research firm based on survey results)
2. Usability of FinTech and other technologies

Wed Oct 12: Usability of FinTech and other technologies for fund clearance services (consulting firm)
Wed Nov 2: Usability of new fund transfers resulting from FinTech (FinTech-related industry group)P

3. Status of payment clearing system enhancement-related initiatives in other countries

Wed Aug 10: FinTech and initiatives in other countries (Bank of Japan)
Wed Aug 31: Status of payment clearing system enhancement-related initiatives in other countries (think tank A)
Wed Nov 30: Suggestions for payment clearing system enhancements in light of global trends (think tank B)

September• Interim report to Corporate Planning Committee, etc., on progress of initiatives, etc.

January• Summary report to Corporate Planning Committee, etc., and determination of Expert Panelexperts/topics

FebruaryD• Holding of Expert Panel meetingC• Report to Corporate Planning Committee, etc., outlining the Expert Panel meeting• Incorporation of identified issues that require medium- to long-term review into medium-term
management planMarch

FY2017
April
onwardAP• In-depth review of identified issues by relevant working groups• Considering and narrowing down topics for FY201711

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Japanese Banks’ Payment Clearing Network

Results of Zengin-Net Initiatives Aimed at Enhancing
Payment Clearing — I (for Reference)
Zengin System Upgrades• The Zengin System began operation in 1973 and has been steadily upgraded over time by improving performance, adding functions , taking steps toprevent risks, and enhancing security. At present, the 6th-generation Zengin System is in use.
• The Zengin System is a broad network covering all of Japan that provides excellent security and reliability (i.e., not a single service interruption since itbegan operation). It serves as infrastructure for financial transactions in Japan.

Number ofParticipating
Banks

Processing
Capacity(Initial)

Notable Items•

1st-generation system(1973)

88

1.0 million
transactions/day

2nd-generation system(1979)

708

1.4 million
transactions/day

3rd-generation system(1987)

5,304

5.0 million
transactions/day••

Launch of the Domestic Fund Transfer System (members: Japanese banks and Shoko Chukin Bank) andactivation of the Zengin Data Telecommunication System
Implementation of online network
Fund transfers settlement date changed from two days later to one day later (1974)•

Mutual banks, credit unions, foreign banks in Japan, credit associations, labor credit associations, andagricultural cooperatives join the system•

Change to two centers (Tokyo and Osaka)
Start of MT data file transmission (file transfer method)
Switch to same-day settlement, start of sender net debit cap scheme••

System changed from dedicated lines between centers and banks to independent packet networks
Transmission start time brought forward to 8:30 a.m.
• Implementation of the new National Domestic Fund Transfer System (central counterparty) (2001)• Securities trusts, online banks, etc., join system•

4th-generation system(1995)

3,552

13.5 million
transactions/day

5th-generation system(2003)

1,679

15.0 million
transactions/day

1,371
6th-generation system(2011)(As of end of
November 2016)

1,296

20.0 million
transactions/day(Currently)

25.0 million
transactions/day•••

Lines changed to frame relay networks, implementation of line data encryption
Addition of EDI fields to messaging format

Lines changed to IP-VPN network, adoption of TCP/IP
Switch to settlement large-volume domestic fund transfers (over 100 million yen) using BOJ-NET nextgeneration RTGS (compatible with phase 2)• Introduction of new file transmission (new file transfer method instead of MT data file transmission)• Adaptation to ISO20022-compliant XML format messaging, expansion of EDI fields• Addition of messages for Densai-net-specific communication events••

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Japanese Banks’ Payment Clearing Network

Results of Zengin-Net Initiatives Aimed at Enhancing
Payment Clearing — II (for Reference)
Review of Zengin System Based on Future Outlook• Zengin-Net is reviewing the Zengin System from a medium- to long-term perspective, based on changes in the domestic and international environmentthat will affect payment clearing systems, etc.
⇒ The Future Vision of the Zengin System Working Group was set up in 2014, and based on trends in other countries and the results of user needs
surveys, it decided in December of the same year to make the Zengin System operational 24 hours a day, 365 days a year (by developing the MoreTime System).
• The new second medium-term management plan (2016-2018) formulated in March 2016 also specified conducting a review of the Zengin System basedon the future outlook as a specific target and stated that independent surveys relating to payment clearing system trends and payment clearing service
enhancements would be conducted.

Measures Aimed at Operating Zengin System 24 Hours a Day, 365 Days a Year
April 2014•

Establishment of Future Vision of the Zengin System Working Group[Surveying/understanding current situation]
May — August

October
October — December•

Conducted survey abroad (on the status of Faster Payments Service in U.K.)•

Conducted survey in Japan (on needs of individuals and companies)[Interim report]•

Summary and report on current status of Zengin System review[Building consensus with member banks]•

Conducted survey aimed at member banks and building consensus with them

[Final report]
December•

Summary, report, and publication of Zengin System review’s findings[June 2014]
Excerpt from “Japan Revitalization Strategy (Revised in 2014):
Japan’s Challenge for the Future”:“As to enhancing settlement systems, such as real-time banktransfers, the Japanese Bankers Association has stated that it would
consider the improvements to be made to the current fund settlement
system and the schedule to make the improvements in detail, andreach a conclusion by the end of the year, bearing in mind the needto ensure the safety and reliability of settlement systems, inreference to the trends in foreign countries. The Government will
promote initiatives to facilitate such enhancements.”⇒ Decision to make Zengin System operational 24 hours/day, 365 days/year (development of More Time System)
December onward
July 2016•

Based on the final report, the Zengin System Expanded Hours Working Group is established and begins in-depth consideration of the matter•

Solicitation of banks to participate in the More Time System when it begins service; publication of results⇒ Around 80% of all member banks (112 banks) wish to participate in the More Time System from the start of operation.
•

Survey of banks who have applied to participate in the More Time System from the start of operation (112 banks) regarding their planned
connection hours; publication of results

November⇒ At the time of the survey, over 90% planned to connect to the More Time System on weekdays outside of the standard More Time hours (until 6p.m.). Around 50% planned to connect 24 hours a day, while over 90% expected to connect to the More Time System at certain times on weekdays
and holidays as well.

Second half of 2018•

Scheduled start of service

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