Part 4: Beyond the Zengin System—How Will New Payment Systems and On-Chain Finance Connect?
Discussions on on-chain finance are often framed from the perspective of tokens. However, Japan possesses a massive existing infrastructure known as the Zengin System, which has supported interbank transfers for half a century and pioneered real-time transfers globally. Thinking about the future of tokenized deposits and stablecoins is nothing less than thinking about the connection design between these existing rails and new rails.
The Context of New Payment Systems
The Japanese Banks' Payment Clearing Network (Zengin-Net) has published considerations regarding the next generation of payment infrastructure. The points that can be gleaned from the public documents include compliance with ISO 20022, expansion of operating hours, and connectivity with diverse payment entities and new technologies. The "24/7 programmable" finance envisioned by the recommendations is not a matter that can be solved simply by building separate new rails; it is two sides of the same coin as how far the existing interbank payment network can evolve.
Three Design Issues for Connection
1. Message compatibility. The transfer instructions for tokenized deposits (TD) and existing transfer messages differ in both the information they contain and their structure. The common language of ISO 20022 is the key to making these two worlds translatable. The structured data required by the FATF Recommendation 16 revision (remitter and beneficiary information, see Part 6) should also be read in this context.
2. Hierarchy with final settlement. Any token transfer, if it crosses banks, ultimately ends up in interbank fund settlement. The tokenization of Bank of Japan current account deposits (Part 3) and the consideration of new payment systems are not two independent topics, but rather the upper and lower layers of the same hierarchical structure.
3. Avoiding double investment. As the recommendations point out, both existing systems and new infrastructure are highly public social infrastructures, and they could lead to massive double investment. I believe that the design of "how to share roles and coexist," rather than "which one wins," is the most significant issue for Japan's payment architecture.
Implications for Practitioners
For those planning TD/SC initiatives, I recommend drawing a diagram of your company's current Zengin and BOJ-NET connections before looking at token specifications. The value of new rails is determined by the design of the connection points with the old rails.
Source: https://www.zengin-net.jp/zengin_net/pdf/260319_summary_SGreport.pdf