December 18, 2014
On the Results of Examining the Future Shape of the Zengin System
Japanese Bankers Association
Japanese Banks’ Payment Clearing Network
1. Zengin System Extended Operating Hours(1) Purpose and objective

Building on the “Japan Revitalization Strategy, revised in 2014—Japan’s challenge
for the future” (growth strategy) announced in June 2014, trends in foreign nations,and recent developments such as the spread of new payment services using
information technology, Japan’s banking industry will provide a globally advanced
payment service by realizing the 24/7 operation of the Zengin System, the coresystem of bank-mediated credit transfers, so as to upgrade the payments
infrastructure, energize the economy, and improve the lives of citizens.

(2) Results of surveying domestic needs

While there were respondents with the view that the current situation is not overly
inconvenient or that needs for the late-night to early-morning period are low andthat there are safety concerns such as the increased potential for experiencing
financial crime, we were able to verify that both individuals and companies haveconsiderable need for real-time payments for the evening to night period on
weekdays and for Saturdays, Sundays, and holidays.

As for situations for making credit transfers during nighttime on weekdays or on
Saturdays, Sundays, and holidays, we were able to verify specific examples, such as
making real-time payments for Internet shopping or Internet auctions or making
remittances for sudden situations like weddings, funerals, and other ceremonialoccasions. There was also the view that payments can be verified, providing a senseof confidence.

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A. Individuals
Target: Individuals nationwide (responses are adjusted according to the demographicstructure)Sample size: 3,000
Survey period: July 2014a) Time Period Where Real-Time Payments Is Desired

28.9%

30.0%
24.0%
20.0%

19.5%

18.5%

10.0%

7.0%
0.3%

0.9%

1.0%

To 3 a.m.

To 6 a.m.

To 9 a.m.

0.0%
Current
situation isfine

To 6 p.m.

To 9 p.m.

To 12 a.m.

It should bepossible atany timeb) Preferences for Credit Transfers (Real-Time Payments) During Nighttime or on
Saturdays, Sundays, and Holidays
52.0%
50.0%
38.0%

40.0%

30.0%
20.0%
10.0%

10.0%

0.0%
I would use it

I don’t know

2I would not use itB. Companies
Target: Companies nationwide (sampled by industry for each geographic block of theEconomic Census and by size of the head office)Sample size: 500
Survey period: July 2014a) Needs for the Evening to Night Period on Weekdays
50.0%
42.6%
40.0%

34.0%

30.0%

20.0%
13.0%
9.0%

10.0%

1.1%

0.3%
0.0%
Current situation
is fineTo 6 p.m.

To 9 p.m.

To 11 p.m.

It should bepossible at anytimeNo replyb) Needs for Saturdays, Sundays, and Holidays
70.0%
60.0%58.9%

50.0%

37.3%

40.0%
30.0%
20.0%

12.6%

15.8%

10.0%
0.0%
Current situation is fine

Saturdays

Sundays

Holidays

Note: Since multiple replies were possible, percentage totals exceed 100%.
(3) Building a platform for 24/7 operation
By extending the functions of the Zengin System through development of a separatesystem, operating hours will be extended to include Saturdays, Sundays, and holidays
As a method for realizing 24/7 operation of the Zengin System, in addition to thecurrent Zengin System with operating hours of 8:30 to 15:30 on weekdays and 7:30
to 16:30 on the final day of the month, a new platform separate from the main3

system will be built to cover such time period when payments were not processed as
the evening to night period on weekdays and Saturdays, Sundays, and holidays
where considerable unmet needs exist for both individuals and companies. As aresult, the existing main system and the new platform together will operate on a
24/7 basis and will establish an environment where real-time credit transfers toother banks will become possible.
Image of the 24/7 Platform of the Zengin SystemTime period

Weekdays

Saturdays, Sundays, and holidays

Current operating hours• To realize 24/7 operation, a newplatform will be built separate from themain system.

Newly extended operating hours

0:00 to 8:30

・Current hours where all member
banks are required to be connected.
8:30 to 15:30

・Real-time payments are possible
between all member banks.
・Current operating hours will bemaintained by the main system.

• Envisioned mainly for credit transfers
using Internet banking.

15:30 to 24:00

• Connection time will be determined byeach member bank based on customer
needs (further examination will bemade of establishing certain common
operating hours). Participation andconnection will begin as member banks
become ready.

• Real-time payments between connected
member banks are realized.

While all member banks are required to be connected during the current period ofoperating hours, uniform responses will not be required of all member banks for the
newly extended period of operating hours. Rather, individual member banks will
determine the time period they will connect based on customer needs.

Regarding the establishment of a certain time period to cover the needs ofindividuals and companies (for example, a certain period after 15:30 on weekdays),
the banking industry will examine a framework to satisfy customer needs, such as
extending the period of operating hours where all member banks connect to the newplatform.

The condition for completing real-time payments during newly extended operating
hours is banks making credit transfers (sending banks) and banks receiving credit
transfers (receiving banks) both being connected to the new platform at the sametime. For this reason, many member banks will be encouraged to connect to the newplatform for a longer period than the defined time period noted above to include

4Saturdays, Sundays, and holidays, and thus the time period where real-time
payments are possible between connected member banks will extend.
Since connection times will differ by member bank during newly extended
operating hours, when the customer of a bank requesting a credit transfer (sendingbank) implements a credit transfer, it may be unclear whether this will be areal-time payment or a payment made at the earliest time on the morning of thenext business day (whether it will be handled as a credit transfer reservation).
From the perspective of customer clarity, this situation should be handled by eachmember bank (sending bank side) taking such measures as indicating on the screen
when receiving credit transfers during Internet banking. In addition, anexamination will be made to further increase usability, such as examining a scheme
for minimizing credit transfer errors (processing failure at receiving banks).

Also, in time periods when the bank to receive the credit transfer (receiving bank) isnot connected to the new platform, it is envisioned that the new platform will
reserve the electronic credit transfer message received from the bank requesting
the credit transfer (sending bank), and when the receiving bank connects to thenew platform, payment will be promptly made (for receiving banks notparticipating in the new platform, payment will be possible at the earliest time on
the morning of the next business day [around 8:30]).

The new platform will mainly concern credit transfers using Internet banking, andit will not necessarily require extending the operating hours of bank branches.

(4) Start of service
Regarding the start of service, a roadmap will be established bearing in mind theneed to provide service as early as possible, and steady efforts will be made towardearly realization.

At the present moment, a full-fledged examination of operational and system
requirements will begin in early 2015, with the aim to begin service in 2018.
Regarding the timing for the formal start of service, it will be determined after
examining these requirements by examining when the development of the newplatform will be completed and by considering safety and reliability issues such as
by verifying the completeness of acceptance and comprehensive operation tests.

5Regarding the participation of member banks in the new platform, it is expectedthat many member banks will participate from the start. However, since
preparation times will differ by member bank, such as regarding the systemdevelopment situation and administrative preparations, a framework will be
examined where member banks can participate, connect, and extend theirconnection time as they become ready following cutover.

Steps to Realization (Overview)

Start of service

Cutover

Decision / transfer operations

Acceptance and comprehensive
operation tests

System development

System design

Signing of basic contract

Examination of operational andsystem requirements

Project start

Zengin System
Member banks

System design / development(Initial participating banks)
System design / development(Participation and connection as member banks become ready)(5) Future responses
A project for building the new platform will be established within theadministrative office of the Zengin-net to begin specific examinations. In addition, aunit for examining the extension of the operating hours of the Zengin System willbe established within the Zengin-net to manage the progress of the project and toexamine various issues related to the extension of operating hours.

In building the new platform, we will closely examine future steps toward its
realization and establish a schedule and action plan toward realization. In thisprocess, our examination will fully consider the system development of member
banks and the time period, etc. for connecting to the new platform.

Regarding the development of the new platform, the development plan will be6decided after examining specific operational and system requirements, and systemdevelopment will begin after concluding a basic contract on system developmentwith the system vendor.
With the extension of the operating hours of the Zengin System, regulations on thehandling of credit transfers between member banks will be revised in part asneeded, and basic matters regarding the operation of the new platform will beexamined.

Once the new platform begins operating and when credit transfers to other banks
become possible between connected member banks during the evening or later on
weekdays and on Saturdays, Sundays, and holidays, it is thought that the timing
for determining when bills of exchange are dishonored will continue to beestablished by individual banks in light of various deadlines related to the clearingof bills, given that the deadline for returning dishonored bills and the time needed
to deliver bills differ by clearinghouse and given the legal perspective. Regarding
this matter, consideration will be given to preventing the extension of operating
hours from confusing customers such as by having banks widely publicize their
responses to their customers as needed.

72. Use of Financial EDI(1) Purpose and objective

Building on Study Group Report on the Enhancement of Corporate Payment
Services published in April 2012 and on Japan’s growth strategy, there is a need forJapan’s banking industry to liaise with industry and examine the use of financial
electronic data interchange (EDI) 1 with the view to upgrade the payments
infrastructure and improve the productivity of companies.

(2) Survey of domestic needsIn examining the use of financial EDI, since it will be essential to understand theneeds of industry that will actually use it, a questionnaire survey was carried out
together with related ministries and agencies and with the cooperation of theKeidanren, which drew responses from 59 industry groups and 201 companies as ofDecember 1. Of the companies responding, those with sales of JPY100 billion ormore exceeded 60%, and those with sales between JPY10 billion and JPY100 billion
exceeded 20%.

A. Usage situation, needs, and effect of commercial EDI and financial EDI

The replies received from companies indicated that the combined total of companies
using either commercial EDI or financial EDI or both (here and subsequently,
including companies examining such use) and companies interested in using EDIalthough they are not doing so now surpassed 70% of all respondents, confirming
the need for using commercial EDI or financial EDI (including potential need)(needs tended to be higher as the size of companies’ sales increased). In addition,
most of the companies actually using commercial EDI or financial EDI responded
that there was a business efficiency effect, making it clear that the use ofcommercial EDI or financial EDI contributes to increasing the efficiency of business1. In this report, electronic data interchange (EDI) is divided into two categories asdefined below.
•Commercial EDI: EDI where such commercial information as orders sent andreceived and invoices are exchanged and shared between companies throughcommunications networks using electronic data.
•Financial EDI: EDI for supplementing credit transfer data with such commercial
data as orders sent and received and invoices. Up to 20 digits can be entered in thecredit transfer EDI data column.
8operations.

B. Toward the use of financial EDIOne of the main benefits of using financial EDI is the facilitation of accounts
receivable reconciliation. Many companies, however, performed reconciliation using
the functions of accounting software (including their own computer systems), using
such data as “name of credit transfer requester,” “amount,” and “credit transferdate” as collating keys, and 50% of reconciliation remained a manual process. Manycompanies raised as an issue the need to compare invoice details with payments
received when one company sends multiple invoices (combined credit transfers). As
a result, reconciliation represented a considerable burden, with more than 20% ofcompanies expending 50 hours or more a month on reconciliation. In particular, thisburden tended to be high for large companies receiving many credit transfers.
Meanwhile, companies using financial EDI to link commercial EDI with payment
information came to less than 10% of companies using commercial EDI, and the60% of companies not engaged in linking did not feel a need to link from acost-benefit perspective. It will be necessary to examine cost effectiveness toward
the use of financial EDI. For example, this issue should be clarified with reference
to verification performed through a joint system test as is discussed below.

There is the view that the number of digits used in financial EDI should beincreased from the current 20 in response to XML. Of the companies utilizing
financial EDI, however, less than 20% use accounting systems where XML
electronic messages are possible, and most take a cautious stance toward theadditional cost burden, such as the investments needed to make company computer
systems compatible with the XML format.

Examining the usage situation for commercial EDI and financial EDI, the numberof companies using only financial EDI is limited, indicating that the greater use ofcommercial EDI will be a key factor for the use of financial EDI. Regarding thispoint, while more than 60% of the companies using commercial EDI use
industry-defined standard formats, more than 60% also use multiple formats forsuch reasons as the request of payer companies (order-placing companies) orinvolvement of different industry groups. More than 70% of companies replied thata standard EDI is needed that is not limited to one industry, indicating the strong9need for industry-wide standardization. In realizing industry-wide standardization,
however, many companies are concerned about the operational burden or such
system-related costs as development and maintenance, and an industry-wide effort
is desirable.
EDI Awareness and Use by Companies
Responses

Percentage
shareI know of EDI

66.7%

I use (am examining) EDI

53.7%

Commercial EDI

52.2%

Financial EDI

15.9%

Users ofboth are14.4%

Need for using
commercial EDI andfinancial EDI

I don’t use EDI but am interested

5.5%

I don’t use EDI and am not interested

7.5%(including potentialneed)

33.3%

73.6%

I don’t know of EDI
I learned about EDI through this survey and am interested

14.4%

I am not interested

18.9%

Business Efficiency Effect of Commercial EDI and Financial EDI

Linking Commercial EDI and Payment Data through Financial EDI(Question for companies using commercial EDI)

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Standardization of Commercial EDI

Use of Multiple Commercial EDIs

(3) Joint System Test by the Distribution Industry and Financial Institutions
To verify the efficiency gains for the payment operations (accounts receivablereconciliation) of the distribution industry should the linkage of commercial
informationand payment information(expansionof supplementary EDI

information) be realized, the distribution industry and financial institutions carriedout a joint system test in November, in which seven companies and three banks
participated.
The joint system test did not supplement credit transfer data with commercialinformation. Rather, it was supplemented with reference information to enablelinking with commercial information, and commercial information was managed
through a separate application service provider (ASP). The electronic messages forsending and receiving credit transfer data used XML electronic messages between
companies and the ASP and a fixed-length format between the ASP and banks. This
scheme satisfied the needs of companies desiring to supplement payment
information with data exceeding 20 digits in length, such as commercial EDI data,
and represents a relatively small burden for banks with respect to computer systemdevelopment, etc.

Through this experiment, by using financial EDI to link commercial informationand payment information, the name collation work to determine credit transfer
originators and the collation work arising when credit transfer amounts differ frominvoice amounts could be automated. As a result, we were able to confirm thatlinking commercial information and payment information through financial EDI
would yield business efficiencies, such as reducing by 50% to 70% the work ofreconciling accounts receivable for manufacturers and wholesalers and the work ofreconciling sales rebates for retailers. There was, however, no effect in increasing
efficiency for companies whose workflow consisted of using payment notifications to11

reconcile accounts receivable before such payments were received.

We were also able to verify that our scheme of newly developing an ASP would
function as anticipated and that this would be a possible choice worth investigating
toward its realization.

Image for Implementing the Joint System Test
SellerBuyerPayercompany(2) EDI data
storage(8) EDI dataset(3) Conversion(7) Conversion(1) XMLInvoicing
company(6) Fixed-lengthdata(4) Fixed-length
formatSendingbank(9) XML(5) Zengin
SystemReceivingbank(4) Future responses

While the effectiveness of the use of financial EDI was made clear through a surveyof domestic needs and a joint system test, future issues were also highlighted.
Bearing these issues in mind, we will deepen the exchange of views about and theexamination of the following points with the distribution industry as well as withthe organizations and companies of different industries, with system vendors ofEDI and accounting solutions, and with persons with expert knowledge.

•

Examination toward realizing the use of financial EDI (linkage of commercial EDI
and payment information)•

Examination and verification of realization schemes, including cost effectivenessand cost allocation•

Responses by industry toward industry-wide standardization of commercial EDI

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