Task Force for the Next-Generation Payment Systems

Report by the Task Force for the Next-Generation Payment Systems (Overview)
Participation of Funds Transfer Service Providers in the Zengin System• The Task Force for the Next-Generation Payment Systems (hereafter the “TF”) recommends that the requirements for participating in theZengin System, whose membership qualification is currently limited to deposit-taking financial institutions (i.e., banks), be revised. The target ofrevision is to enable funds transfer service providers (i.e., non-banks) to apply for its membership by FY2022. Accordingly, further details on
membership requirements and necessary institutional framework for expanding membership qualification will be worked out.
1. Requirements for participation• Non-banks which intend to participate in the Zengin System should be subject to the same terms and conditions as the existing member banks from theperspective of ensuring the stability of the payment systems. These include the application of the “collateral system” and “system for providing liquidity”
required under the Zengin-Net Rules. The Zengin-Net, the Financial Services Agency and the Bank of Japan will closely cooperate and discuss the way
forward for setting up a monitoring framework and standards of those non-banks from the perspective of stability of the payment systems.
• In the medium to long term, further rules and institutional frameworks, if any, that contribute to all participating entities will continue to be explored.
2. Participation method• Two access models to join the Zengin System are expected to be implemented from the perspective of ensuring the fairness in accessibility to thepayment systems. Those models are namely “Agency Participants” (directly connected non-settling participants) and “Clearing Participants” (directlyconnected settling participants).
• Non-banks executing settlement as Clearing Participants are likely to have a more significant impact on payment systems including the activities of theZengin System. The requirements on their financial soundness and risk management for Clearing Participants should be more stringent compared to thoseintended for Agency Participants.
• Non-banks joining the Zengin System as Agency Participants will have to make an agreement with Clearing Participants who will provide settlement
services on their behalf. Accordingly, terms and conditions included in the agreement are expected to be standardized.
3. Connection method• In the short term, participants connecting to the Zengin System’s infrastructure will use the current method (i.e., connecting through relay computers). In
parallel, however, a new method using an application programming interface (API) should be explored for use in the medium term. This method isexpected to benefit both the existing member banks and non-banks.
• At the same time, other new information technologies and possible measures will be explored from medium- to long-term perspectives, with a view tofurther enhancing the efficiency gains from modernizing the whole Zengin System.
Enhancement of convenience of frequent, small-amount payments• The TF has concluded that the “Cotra” Project is a feasible solution for the short-term revision perspective. The project is led by five city banks
aiming to build a new infrastructure for small-amount payments. The Zengin-Net and Cotra Project Team will closely cooperate and discuss theway forward in order to launch the Cotra operation in early FY2022.
• In parallel with the Cotra Project, it is desirable to continue discussions on the frequent, small-amount payments in medium to long-term, keeping in
mind the timeframe of the next-generation Zengin System upgrade.

Actions in the next fiscal year onwards• In order to engage in in-depth discussions based on the above recommendation, the TF has decided to establish two working groups: one is expected toaddress system-related issues, and the other to address rule-related issues. Working group members will look into the specifics of those issues.

1Task Force for the Next-Generation Payment Systems

Future considerations and timeline
Actions

Considerations

WG

FY2021

FY2022★ Expand participation(1) Participation of non-banks in the Zengin System
Overallroadmap(2) Enhancement of convenience of frequent, smallamount payments (Cotra PJ)(3) Consideration of the next-generation Zengin
System―(1) Consider partial amendments to relevant rules (e.g.
Operational Procedures)

Zengin -Net

(1) Consider matters including monitoring items(Rule WG）
(Rule WG）

FSA/BOJ
Zengin -Net
(Rule WG）

FSA/BOJ(1) Consider standardizing terms and conditions
included in an agreement when Clearing Participants
provide the settlement service to the Agency Participants

Zengin -Net
(Rule WG）

Development/upgrading (1) Consider system-related issues to be addressed toof systems for new connect non-banks (e.g. identification info., function toparticipants in the check recipients’ accounts)
Zengin System

Zengin -Net

Enhancement ofFurther improve flexibility of, and enhance,flexibility of connection (1)connection
methods (Consider an API gateway)
methods

Zengin-Net(2) Prepare for operation of “Cotra” (including
cooperation with the Zengin System)

Zengin-Net(3) Consider institutional framework-related issues
associated with upgrading to the next-generation ZenginSystemZengin -Net

Consideration of theConsider further improving efficiency of the Zengin
next-generation Zengin (3)System(e.g. usability of new technologies)
SystemZengin-Net(3) Consider system-related policies on upgrading to thenext- generation Zengin SystemZengin-Net

Realizing “Cotra”★ To launch the operation★dittoZengin -Net
Establishment of an
institutional frameworkfor new participants inthe Zengin System (1) Consider participation as Clearing Participants

FY2023 toFY2027(System WG）(System WG)(Rule WG)

Cotra PJ
(Rule WG）

(Rule WG)

(System WG)

Consideramendments

Amendment
procedures

Considermonitoring
framework andamendments

Amendment
procedures

Consider monitoring framework andamendments
Consider mattersto coordinate

Standardize

Consider actions
Coordinate withstakeholders

Prepare forparticipation

Consider necessaryfunctions, etc.
Conduct PoC

PoC verification
Preliminary
consideration

Requirements
definition, etc.

Consider governance, risk
management, etc.

Consider next-generation Zengin System

Consider next-generation Zengin System

Consider next-generation Zengin System2