September 15, 2022

Japanese Banks’ Payment Clearing Network
Expansion of Qualification
for Participation in the Zengin System
Japanese Banks’ Payment Clearing Network (Zengin-Net, Chairperson:Matsuo Tsuji) decided at the board of directors today to expand thequalification for participation in the Zengin System. The participation waspreviously limited to deposit-taking financial institutions (i.e., banks); from
October 2022, the System will accept funds transfer service providers (i.e.,non-banks) as participants1. This decision was based on the recommendationby the "Task Force for the Next-Generation Payment Systems". As a result ofthe decision, those non-banks wishing to participate in the Zengin Systemand completing the necessary procedures for such participation can realize
funds transfers with participating banks. For other details, please see theattachment.
Furthermore, from the perspective of improving the convenience andraising the cost efficiency of both existing member banks and non-banks
wishing to participate in the Zengin System, Zengin-Net will continue toexamine the details for developing a new connection method using anapplication programming interface (API Gateway). API Gateway is expected
to be developed while the current 7th Generation Zengin System is inoperation2 were certain conditions to be met.
As an operator of the Domestic Funds Transfer System3, which is part ofThis is subject to the approval of the relevant authority.
The 7th Generation Zengin System is scheduled to be upgraded in 2027. The timing of thedevelopment of the API Gateway will be decided based on several conditions including the timing offunds transfer service providers’ participation and the prospects for the transition of existing memberbanks.
3 The Domestic Funds Transfer System is a mechanism that connects domestic financial institutions
online, enabling them to conduct funds transfer transactions. The Zengin System is the core system of
the Domestic Funds Transfer System, and to participate in the Zengin System means to participate in
the Domestic Funds Transfer System.
12the social infrastructure, Zengin-Net will maintain the appropriate and stable
operation of the Domestic Funds Transfer System and the Zengin System, aswell as continue to work on sophisticating the Systems in response to theneeds of payment users, participants in the Zengin System, and the society.

(Attachment)

Japanese Banks’ Payment Clearing Network

Expansion of Qualification for Participation inthe Zengin System (1)•••In FY2020, the "Task Force for the Next-Generation Payment Systems” was established in Zengin-Netto discuss the ideal payment system with members, including academics, the Japan Payment Service
Association, the Fintech Association of Japan, system vendors, relevant authorities, and banks.
The report released by the Task Force in January 2021 recommended that the qualification forparticipation, which had been limited to deposit-taking financial institutions, should beexpanded to include funds transfer service providers (i.e., non-banks).
Based on this recommendation and trends in other countries among other factors, Zengin-Net had been
discussing details with the relevant parties from both institutional and system aspects, and decided toexpand the qualification for participation to funds transfer service providers from October of2022*.
*Subject to the approval of the relevant authority[Illustrated Structure after Participation of Funds Transfer Service Providers]✓ When a funds transfer service provider participates in the Zengin System, money transfers froma bank account to the account of the funds transfer service provider, from the account of thefunds transfer service provider to a bank account, and between accounts of different funds
transfer service providers are possible via the Zengin System.

(Account of Bank A)(Account of funds transfer
service provider B)

ZenginSystem

(Account of funds transfer
service provider C)(Account of Bank D)

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Japanese Banks’ Payment Clearing Network(Attachment)

Expansion of Qualification for Participation inthe Zengin System (2)•In realizing the expansion of the qualification for participation to include funds transfer service
providers, the participation requirements and participation methods were examined and arranged tomaintain the stability and reliability of the Zengin System. Furthermore, from the perspective of
reducing the burden on both existing financial institutions and funds transfer service providers,
Zengin-Net will continue to examine the details based on the policy of building a newconnection method using an application programming interface (API Gateway) during theperiod the current 7th Generation Zengin System is in operation (up to 2027), assuming thatcertain conditions such as ensuring the maintenance of the current level of service are met.

[Overview of API Gateway]
Zengin SystemRCRCRC

Proprietaryspecifications

API Gateway

Standardspecifications➢ The standardization of connection specifications andconnection flexibility can be achieved by utilizing API
instead of connection via a relay computer (RC).
➢ At the Task Force, several funds transfer service
providers have requested a connection method thatutilizes API for easy connection.
➢ In addition to funds transfer service providers, existing
member banks can use it.
➢ The time frame for construction will be decided basedon some points including the timing of the funds
transfer service providers’ participation and theprospects for the transition of existing member banks.

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Japanese Banks’ Payment Clearing Network(Attachment)

Participation Requirements, Participation
Process, etc.
•The requirements, methods, and process for participation in the Zengin System are the same fordeposit-taking financial institutions and funds transfer service providers.

Participation
requirements•••

Deposit-taking financial institutions or funds transfer service providers
Amount of net assets is not negative
Preparation of management system and operating system that enable theappropriate execution of domestic fund transfer operations in accordance with laws
and regulations, Operational Procedures, and other rules* Describing participation requirements after amendments to regulations of the Zengin-Net* At the same time, the Financial Services Agency plans to revise related administrative
guidelines from the perspective of properly supervising funds transfer service providers
participating in the Zengin System.

• To be selected from the following two methods:✓ Clearing Participant (direct participant)* Funds are settled through the participant’s current account with the Bank of Japan (BOJ).
In the previous fiscal year, the BOJ outlined how it will address access to BOJ currentaccounts by funds transfer service providers.

Participation
methods✓ Agency Participant (indirect participant)* No BOJ current account is held, and funds are settled by entrusting settlement toanother Clearing Participant.

•Participation
process

The main process up to participation is as follows: Through taking these steps,
necessary matters are confirmed from the viewpoint of whether it is possible toreliably execute domestic funds transfer transactions. Advance consultation with
Zengin-Net is required for participation.
(1) Application for membership(2) Deliberation and approval by the board of directors(3) In-house system development/Connection testing with the Zengin System(4) Connection determination * In the past, it took approximately 14 months from (1)application for membership thru (5) start of connection.
(5) Start of connection3

Japanese Banks’ Payment Clearing Network(Attachment)

Appendix
Overview of Zengin-Net and the Zengin System

4(Attachment)

Japanese Banks’ Payment Clearing Network

Overview of Payment System(from October 2022)
Funds transfer
service providers

Smartphone payments andtransfers between individuals(Funds transfer service providers)

ZenginSystemCotraSystem*Banking appTransfer, etc.
OTC/ATM/IB/FB

Zengin EDI
SystemBanking app smartphone/QR
payment

Clearing of net
receipt-paymentbalance, etc. throughthe Zengin System* Payments ofClearing
centerDebit card/Credit card

Clearing
center

CD/ATM

Online service
network

Core Time System

Clearing
centerMore Time System

Fee collection, etc.

Multi-payment network

Electronically recordedmonetary claims

Electronic monetary claim
recording institutions

Bills and checks

JPY 100
million andabove aresettled on
BOJ-NET for
eachtransaction.

BOJ Net（FundsTransferSystem）

Bill clearing system

Direct debitBanks, etc.

Trading and instructions

Funds clearing* The Cotra System is scheduled to start operation on October 11, 2022.

Funds settlement

5Japanese Banks’ Payment Clearing Network(Attachment)

Overview of Zengin-Net and the Zengin System◆ Japanese Banks’ Payment Clearing Network (Zengin-Net)••

Funds clearing institution based on the Payment Services Act (In 2010, it became independent from the Japanese
Bankers Association and became a general incorporated association. A nonprofit corporation.)
Engages in the operation of the Zengin System and the Zengin EDI System, and the management of rules fordomestic fund transfers.

◆ Zengin Data Telecommunication System (Zengin System)••

A system whereby nearly all deposit-taking financial institutions in Japan are connected to process real-time
payments online.
Realized 24/7-operation from 2018.

[Number of participating financial institutions, number of transactions, etc.]
Number of user
financial institutions

1,149 institutions (banks, shinkin banks, credit cooperatives, agricultural cooperatives,
Japan Post Bank, etc.) (as of the end of July 2022)

Number of branches

29,725 branches (as of the end of July 2022)

Number/Amount oftransactions handled

Annual: Approx. 1.8 billion transactions/Approx. JPY 3,200 trillion
Daily average: Approx. 7.5 million transactions/Approx. JPY 13 trillion (2021 results)◆ Zengin EDI System (ZEDI)•

Implemented in December 2018. As of the end of July 2022, 1,017 institutions were connected.

•Supports XML messages (ISO 20022), the next-generation international standard. The amount of information thatcan be sent has increased dramatically.

•Not only transfer data but also information on business flows between companies can be sent, which is expected
to contribute to the digitalization and streamlining of accounting processes of companies from order placementand delivery to payment.
* Please refer to the website for details. https://www.zengin-net.jp/en/

6Japanese Banks’ Payment Clearing Network(Attachment)

Safety Measures of the Zengin System•••The Zengin System runs in parallel at the two Zengin Centers in Tokyo and Osaka. Even if one centersuspends operation due to failure or natural disasters, the other center can continue to operate. The
devices and communication lines that make up the system are all duplicated. In addition, a variety of drills
are conducted every year with member banks to prepare for natural disasters and failures.
For communication with member banks, security was strengthened by using a closed area network.
Settlement risk is avoided by implementing measures including the Sender Net Debit Cap Scheme (depositof collateral in line with the remittance amount), a system for providing liquidity (provision of funds at thetime of default), and the BOJ-NET RTGS settlement for transactions of JPY 100 million and above.

[Configuration of the Zengin System]

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Japanese Banks’ Payment Clearing Network(Attachment)

History of Zengin-Net
1973

Start of operation of the Zengin System(there were 88 banks, including city banks and regional banks, at the time)

1979Participation by mutual banks, shinkin banks, the Norinchukin Bank, etc.
(there were 708 participating financial institutions at the time)

1984

Participation by credit cooperatives, labour banks, agricultural cooperatives, etc.
(there were 5,479 participating financial institutions at the time)

2009

Japan Post Bank joined

2010

Establishment of Japanese Banks’ Payment Clearing Network (Zengin-Net),a clearing institution based on the Payment Services Act

2018

Implementation of More Time System(realizing Zengin System operations on a 24/7 basis)
Implementation of Zengin EDI System

2021

Introduction of Domestic Fund Transfer System Operational Costs(interbank commission of JPY 162 or JPY 117 per transaction → Domestic Fund Transfer
System Operational Costs of JPY 62 per transaction)

Expansion of qualification for participation to include funds transfer service providers

2022
Start of linkage with a frequent, small-amount payment system (Cotra)

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