On March 6 2009, a bill on fund settlements was submitted to the Diet. If the new legislation passes, which appears likely, it could bring about remarkable changes in the services offered and methods of fund settlement in Japan. The bill's aim is to improve the security, efficiency and convenience of fund settlement methods and it addresses issues mainly in the following three areas.
In Japan, there are two main types of prepayment methods used by consumers to make prepayments for the purchase of goods and services. One method is the use of prepaid vouchers. Prepaid vouchers are physical items such as certificates or cards that provide and track a credit that can be used to make future purchases up to a prepaid amount. A widely used form of prepaid voucher is the card used for payment of train and subway fares. The second type of prepayment method employs server-type prepayments that include payments for goods and services made through internet websites. With the server-type method, prepayments are registered only on servers and users make payments by accessing the servers through telecommunication lines.
The Act on Regulation Etc. of Prepayment Type Vouchers (Prepayment Voucher Act), which took effect in 1989, already regulates prepaid vouchers used for fund settlements. However, the Prepayment Voucher Act does not cover server-type prepayments, which have become widespread. As there have been almost no regulations of server-type prepayments, concerns mainly for consumer safety have been growing. The bill addresses these concerns and its regulations cover both types of prepayment methods. The bill basically maintains almost all the same regulations as those under the Prepayment Voucher Act, but also prescribes regulations on matters not provided for under it, for example, an obligation for business operators to provide refunds to users if their businesses are abolished. In addition, current regulations require a business operator to deposit (or contract a financial institution to deposit on its behalf in accordance with an administrative order) a certain portion of the prepayment money received with the official depository, a public institution under the Ministry of Justice. However, the bill will give business operators the option to instead entrust such money to trust companies. Allowing for the use of trusts further protects consumers as the funds held in trust will be preserved in cases of bankruptcy.
Fund transfer services
In Japan, only persons licensed under the Banking Act are allowed to engage in exchange transactions, ie, transactions whereby a sender is able to go to one banking institution to move money to a recipient's account with another banking institution. Although exchange transactions conducted by banks are safe and reliable, some users have complained that their business hours are too short, commissions are high and for foreign users, the English explanations are insufficient.
The bill will allow non-banking entities that satisfy certain conditions to register to engage in exchange transactions (though they will be restricted to transactions involving small amounts of money). In addition, the bill will also permit qualifying exchange transaction business operators in foreign countries to engage in exchange transactions. Exchange transactions conducted by non-banking entities are expected to offer users more convenient services.
The bill also creates regulations to protect users when such non-banking entities go bankrupt, such as requiring business operators to maintain certain levels of cash reserves. The bill also stipulates regulations for the proper handling and management of personal and confidential information including transactional information accessible by the operator.
Inter-bank fund settlements
Inter-bank fund settlements in Japan are conducted through the national bank data communications system (Zengin System) operated by the Tokyo Bankers Association, a non-governmental corporation. Although the Zengin System is very efficient and reliable, the timing of responses to users' requests and long-term continuity and consistency in top-level decision making have raised issues of concern. In addition, it is thought to be desirable to improve the legal stability of the operators that act as inter-bank clearing agencies.
As a consequence, the bill requires business operators to obtain a licence to engage in fund clearing activities, and such operators must conduct their operations in compliance with a set of operational guidelines (gyoumu-houhou-syo). By setting relatively strict regulations, including a prohibition against participating in non-clearing business through subsidiaries or otherwise and providing for a variety of means of supervision by a government agency, the bill enhances the legal stability of fund-clearing businesses and will create fairer and more transparent governance over the operators.
If this bill passes, the business of fund settlements is expected to be carried out by a variety of entities and in more convenient ways. Some newspapers have already reported that some companies have started to look into the use of fund transfer services as a method for handling payments for purchases made on shopping websites and for private remittances.
Yoshimune Muraji and Akira Matsuda