Public Procurement, Finance, and Payment Processing—Three “Trust Infrastructures” Are Simultaneously Strained

Three significant events occurred in Hiroshima Prefecture around the same time. The ongoing additional hearings for a former project manager of the Ono City Waterworks Bureau in relation to a government-backed bid rigging incident. The death of Akihiro Yamamoto, the former chairman of the Hiroshima City Credit Union. And the bankruptcy of the credit card payment processing company “Zen Toshi.”

These events differ in industry and scale. However, they raise the same question when viewed together—Who supports the “trust” that drives the local economy, and what mechanisms are in place? And is that mechanism truly functioning now?

Public procurement relies on the trust that “taxes are used correctly.” Local financial institutions depend on the trust that “the money deposited circulates within the community.” Payment processing is based on the trust that “the proceeds from sales will arrive as expected.” These aspects are usually taken for granted. Just as turning on a tap yields water, their smooth operation is assumed. Yet, this assumption is currently being shaken in three different areas.

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Ono’s Bid Rigging—An Invisible Structure of “Who Decided the Price?”

The government-backed bid rigging incident in Ono City involves suspicions that a former project manager leaked bidding information regarding public works ordered by the city’s waterworks bureau. The Fair Trade Commission and investigative authorities are continuing additional hearings, and the full scope of the incident has yet to be revealed.

It is crucial to distinguish between fact and speculation here. What is currently confirmed is the ongoing process of “additional hearings,” while the specific amounts of misconduct and the range of involved parties are still under investigation. However, if government-backed bid rigging in local public works is uncovered, its impact cannot be measured solely by the amount of money involved.

Public procurement by local governments is a lifeline for local construction companies. According to statistics from the Ministry of Land, Infrastructure, Transport and Tourism, public works ordered by municipalities with a population of around 100,000 can amount to several billion yen annually. In the case of Ono City, public works related to water services alone can reach several hundred million yen each year. If there were misconduct in this ordering process, it could mean that businesses that could have legitimately won contracts were excluded. In other words, the victims are not just taxpayers; other businesses that participated in the bidding have also suffered from a loss of trust.

The root of the problem lies in the “system.” There are systems in place to ensure the transparency of bidding—such as electronic bidding, post-publication of estimated prices, and third-party monitoring. However, having a system and having it function effectively are two different things. Can we truly say that “transparency is ensured” with only formal checks? The very structure that has allowed the gap between rules and reality to persist is being questioned in this incident.

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Death of Former Chairman Akihiro Yamamoto—The Fragility of Regional Finance Dependent on “Personal Trust”

Akihiro Yamamoto, the former chairman of the Hiroshima City Credit Union, has passed away. While considering the official announcement regarding his age, we should reflect on what he left behind and what his absence signifies.

Yamamoto was known for his “on-site principle,” personally visiting local small and medium-sized enterprises and engaging in direct dialogue with business owners. Unlike banks, credit unions operate on the principle of mutual assistance among members. Although they do not match local banks in terms of deposit amounts or loan balances, they have played a crucial role in lending to small businesses that mega-banks tend to overlook, serving as the capillaries of the local economy. Under Yamamoto’s leadership, the Hiroshima City Credit Union has ranked among the top credit unions in Japan in terms of deposits and has seen growth in its performance.

However, there is a structural problem here. The trust that “Yamamoto is here, so we are safe” implies that the organization’s credibility was tied to an individual. In local financial institutions, a change in leadership can directly affect lending policies. When a new leader takes over, how will the lending cases that previously went through “Yamamoto’s judgment” be handled? For existing clients, the death of the leader can directly lead to uncertainties in funding.

While an individual’s integrity and passion can serve as a catalyst for organizational movement, a system that relies solely on such factors is fragile. The challenge now is how to inherit the “community-focused” philosophy that Yamamoto built, not as a personal judgment but as an organizational decision-making process—this is not just an issue for the Hiroshima City Credit Union, but a structural question common to regional financial institutions across the nation.

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Bankruptcy of Payment Processor “Zen Toshi”—Sales Proceeds That Should Have Arrived Are Now Missing

The bankruptcy of the payment processing company “Zen Toshi” is putting immense pressure on local businesses in the most direct and immediate way.

Payment processing serves as an intermediary between credit card companies and individual merchants, facilitating the settlement of sales proceeds. For small restaurants and retail stores, directly contracting with credit card companies can be a high hurdle. The complexities of screening, negotiating fees, and managing deposit cycles are handled by payment processing companies, and Zen Toshi was one of them.

What happens due to the bankruptcy? The payments for services or products that merchants have already provided, which were supposed to be deposited through Zen Toshi, are now left in limbo. Since these will be treated as claims in the bankruptcy proceedings, there is no guarantee that the full amount will be returned. For restaurants, ingredients are often paid for in cash upfront. If sales proceeds do not arrive, they cannot procure supplies for the following month. This leads to an immediate cash flow crisis.

Multiple financial institutions in Hiroshima Prefecture have reportedly set up consultation windows, as this is not merely someone else’s problem for them. If Zen Toshi’s merchants face cash flow issues, there is a risk that existing loans may go bad. The disappearance of this “trust intermediary” in payment processing has created ripples both upstream and downstream.

This situation highlights the issues with the regulatory framework in the payment processing industry. Unlike prepaid payment instrument issuers and money transfer businesses that require registration under the Payment Services Act, credit card payment processing under the comprehensive merchant model is regulated under the Installment Sales Act, but regulations regarding the safeguarding of sales proceeds deposited by merchants are insufficient. The livelihoods of businesses are hanging in the balance due to gaps in the system.

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Common Structure Illuminated by Three Events—”Trust” Must Be Protected by Systems

When these three events are viewed together, it becomes evident that the “trust” within the local economy is built on a surprisingly thin foundation.

In the case of bid rigging, the institutional trust in the transparency of public procurement has been shaken. The death of the former credit union chairman revealed the fragility of regional finance that depended on individual trust. The bankruptcy of the payment processing company exposed the vulnerabilities of private enterprises that mediate commercial trust.

What is common among all three is that the trust that belonged to “people” was not sufficiently institutionalized as a “system.” Mechanisms to prevent collusion, organizational structures that can withstand leadership changes, and systems to safeguard sales proceeds—these were all supposed to exist but, in reality, either did not function or did not exist at all.

This is not just a story about Hiroshima Prefecture. Many local cities across the country share the same structural issues. As the population declines and ages, the players in the local economy are diminishing, and the weight of each individual entity is increasing. Therefore, it is essential to design systems that support trust, rather than relying solely on individual integrity and effort.

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Future Points of Interest—The Question of “Who Benefits from This?”

Moving forward, I want to keep an eye on the following developments.

Regarding the Ono City bid rigging incident, I will watch whether the city will begin to review its public procurement system as investigations progress. The question will be whether they can go beyond formal measures to prevent recurrence and take substantive steps toward ensuring transparency in the bidding process—such as establishing a permanent third-party monitoring committee or providing detailed public disclosures of bidding results.

For the Hiroshima City Credit Union, I will observe the continuity of lending policies under the new leadership. In particular, whether the relationships built with small and medium-sized enterprises during Yamamoto’s tenure will be maintained as an organization or whether they will diminish with his departure. This will test the “strength as a system” of regional financial institutions.

Regarding the bankruptcy of Zen Toshi, I will watch how far the return of sales proceeds to merchants progresses. Additionally, I will look for discussions on strengthening regulations across the entire payment processing industry. Depending on how the Ministry of Economy, Trade and Industry and the Financial Services Agency respond to this incident, it could impact other payment processing companies with similar risks.

A common perspective exists across all these issues. When reviewing systems, we must ask, “Who benefits from this?” Ensuring transparency will ease the burden on businesses that participate in bidding fairly. An organizational decision-making structure will benefit small and medium-sized enterprises that wish to continue receiving loans even after a leadership change. A system for safeguarding sales proceeds will ease the burden on small stores that are walking a tightrope between daily procurement and sales.

Trust is invisible. That is why we only realize its existence when it breaks. The simultaneous occurrence of these three events may be coincidental. However, the structure illuminated by that coincidence is not. —The time has quietly but surely come to redesign the trust in the local economy as a “system.”