"It's difficult for some banks to fork out additional costs, even if they're investments for the future, when it's not clear how much they can profit by doing this," said Junichi Kanda, an executive officer at fintech Money Forward..

Progress has been slow. Just 25 of 59 eligible fintech companies had signed contracts with any banks as of September, the most recent FSA figures show. Only 57 of 130 lenders had any one-on-one agreements.

Teaming up with fintechs can give lenders a quick way to offer new digital services, while also gaining a fuller view of customer finances, the FSA official said, asking not to be identified in accordance with the agency's policy. The official hoped talks would accelerate as the deadline neared.

Money Forward, one of the biggest startup participating in the project, has made agreements with fewer than half the 100 banks it wants to tie up with, Kanda said. He tries to convince banks that sharing data via application programming interfaces, or APIs, will migrate customers to mobile platforms from costly branches and automated teller machines.

Money Forward is developing apps for lenders including Gunma Bank and North Pacific Bank. For smaller peers, Kanda said negotiating with banks around the country is daunting, even with the FSA and industry groups arranging match-making sessions.

Another fintech, Moneytree KK, says putting a financial burden on startups could undermine the initiative. "We're not a competitor to banks, we're there to help them win," sales chief Taizo Miyagami said.

Concerns about data-leak risks have played a role in some lenders' slow adoption of open banking, according to Hideki Osawa, a senior consultant at Nomura Research Institute.

The lack of a dominant fintech player of the scale of China's Alipay and WeChat Pay - which have reams of data on individual spending - is also a stumbling block in luring banks on board.

For the startups, failure to reach agreements means they risk being stranded without data access after May, disrupting services for households and small business owners who use their budgeting and accounting apps. That's because the current practice of screen scraping without a bank's permission will end after the deadline.

Some banks may decide to offer data access "for free or very low fees if they see significant benefits," Japanese Bankers Association Chairman Makoto Takashima said at a briefing in December. "On the other hand, there could be cases where banks don't see benefits and can't even cover the costs of maintaining systems."

Rural banks have also been frustrated by the process. Joyo Bank Ltd. President Ritsuo Sasajima, said his firm was quick to build APIs but short-staffed fintechs have been slow to respond. Still, Sasajima, who chairs the Regional Banks Association of Japan, said that on the whole "progress has been made."

Traditional banks often have a "fortress mentality," said James Lloyd, who leads Asia-Pacific fintech and payments at consultancy EY. Ultimately, "this will only work if the banks themselves see value in opening up."

Bloomberg