Built to last: How Japan is approaching the cross-border payments challenge

Japan is extending it until the reliability it has delivered domestically is matched by when a payment leaves borders.

Japan's Zengin system, the world's first such payment infrastructure, has been relaying domestic bank transfers in real time since 1973, connecting nearly every private bank in the country. For 50 years, domestic payments have been settled with reliability and speed. The question is: Why does that decades-old certainty evaporate as soon as a payment crosses a border?

There are growing commercial imperatives to find a satisfactory answer. Total remittances flowing in and out of Japan reached a record 1.54 trillion yen ($8.4b) in the financial year 2023, and in the following year, exports hit 107.1 trillion yen ($862b), the highest since 1979. Japan's foreign worker population, now at 2.3 million and rising, sustains active payment corridors into Vietnam, China, the Philippines, and Indonesia. Across all of these flows, volumes are growing – making the structural limitations of existing infrastructure increasingly difficult to ignore.

Enhancing the cross-border system
Cross-border payments travel through a chain of correspondent banks: Each separate institution operating under different systems, clearing standards, and timelines. Settlements that take seconds domestically can take hours or days internationally. Fees accumulate at each step without full visibility into how much will be deducted, or when. And once a payment moves beyond the originating bank's direct correspondent relationships, transparency over its progress and final delivery depends on the infrastructure of the receiving market, which varies significantly by corridor.

Japanese banks understand this well, and the Financial Services Agency’s (FSA) regulatory posture shapes how they respond to it. Innovation is welcomed, but it must be bank-grade and compliant. New infrastructure cannot come at the cost of AML controls, FX certainty, or operational resilience. This is not conservatism for its own sake; it reflects a considered view that the cross-border system works best when it is extended and enhanced rather than fragmented by competing rails.

Swift, which connects over 11,500 financial institutions across more than 200 countries, is the network through which banks worldwide communicate and settle international payments and the one that those banks already trust and operate within every day. Japan's financial institutions are not looking to build alongside existing infrastructure; instead, they want to extend and enhance their reach into the corridors and recipient markets where demand is growing, and they want to do it with the minimum amount of disruption.

Interoperability over fragmentation
Other markets have responded to cross-border payment friction by building new rails – crypto-native networks, closed-loop wallet systems, and corridor-specific infrastructure designed to bypass the correspondent banking system entirely. The appeal is understandable: Purpose-built networks can move faster and cost less within the corridors they serve. But each new rail solves one problem while creating another, fragmenting the payment landscape into competing systems that institutions must connect to individually, govern separately, and reconcile across. The result is not simplification but proliferation.

Japan's banks have watched this dynamic with scepticism, and their domestic experience reinforces why. Analysts have noted that unlike other developed markets, where payment systems are consolidating around common standards, Japan's own domestic landscape suffers from fragmentation across old and new platforms – a problem the government's 2030 Zengin rebuild is partly designed to address. A market already navigating that challenge at home has little appetite for recreating it across borders.

What Japan's institutions are moving toward is the opposite: One connection that resolves into many endpoints, extending reach without multiplying operational complexity. The expectation is that cross-border infrastructure meets the same standard already established at home.

The recipient markets where that reach matters most have themselves been transformed by mobile finance.

In the Philippines – the third largest source of foreign workers in Japan – GCash alone accounts for 89% of the mobile wallet market, and digital payments account for 57% of retail transaction volume. In Vietnam, MoMo is used by 62% of e-wallet users and in Indonesia, 92% of consumers report using e-wallets regularly.

For the 2.3 million foreign workers in Japan sending money home, the infrastructure to receive money digitally is established, widely used, and growing. The gap is not in recipient readiness. It is whether a payment initiated through a Japanese bank can reach those wallets at all.

The interoperability layer is the missing connection between those two realities. Rather than requiring Japanese banks to build and maintain direct relationships with GCash in the Philippines, MoMo in Vietnam, or GoPay in Indonesia – each a separate integration, a separate compliance framework, a separate operational overhead – an interoperability layer absorbs that complexity into a single connection. The bank sends a payment through its existing infrastructure; the layer handles routing, translation, and last-mile delivery into whichever wallet or local clearing system the recipient uses. The sending institution never needs to govern those local relationships directly.

What it does need – and what the model must provide – is assurance that its compliance framework does not end at the point where the payment leaves the correspondent network. That is the condition in which Japan's banks are holding any cross-border infrastructure, and it is what separates a solution they can adopt from one they cannot.

For Japan's institutions, this resolves a tension that has held back faster cross-border settlement. It’s not a reluctance to modernise but the absence of infrastructure that could deliver speed without ceding oversight. When compliance travels with the payment through to wallet confirmation, faster settlement stops being a concession and becomes a consequence of better infrastructure. For institutions that have spent 50 years demonstrating that reliability and speed are not mutually exclusive domestically, that is not a new principle. It is the domestic standard, applied internationally for the first time.

What comes next
What the preceding decade of Japanese payments policy makes clear is that modernisation here moves differently from other markets. It advances through institutional consensus, within regulatory frameworks, and on timelines that prioritise durability over speed. The cross-border payments challenge is no exception. Japan is not looking to replace what works; it is looking to extend it, carefully and completely, until the reliability it has long delivered domestically is matched by what happens when a payment leaves its borders.

That may be a slower kind of progress. But in a market that built the world's first real-time payment system and has run it for 50 years, slow and steady has a strong track record.