How to reduce Open Banking fees and foster competition

As we have previously reported, the Japan FSA had taken a hands-off approach and left commercial terms for Open Banking access up to negotiation between the banks and the FinTech startups, with the result that implementation got delayed from May to September 2020, and significantly weakened through the acceptance of screen scraping, as called out by Moneytree Chief Platform Officer Mark Makdad earlier this year.

Despite these struggles, banks that see Open Banking as an opportunity rather than a threat, have thrived, with young online-only bank GMO Aozora Net Bank reportedly doubling their API agreements over the past six months, for example.

However, other countries/regions have done much better. Typically, this also came with a stronger hand by the regulator. European Open Banking includes provisions to allow limited free use of the compulsory APIs (up to five calls per account per day, while premium services can be charged for extra), and regulations introduced in Korea at the end of last year have significantly reduced the cost for Open Banking activity for FinTech firms.

Korea’s financial regulator, the Financial Services Commission (FSC), announced its plan to establish an innovative in the payments sector in February 2019. By October, the pilot was launched, and officially went live in December. This accelerated timeline would not have been possible without the foundation of the Open API network that had been set up by the banking industry in 2016, and included a standardization of each bank’s basic services.

The true catalyst in the new regulation was a forced reduction in the fees for FinTech firms. Withdrawal/deposit fees were cut to W40 to W50 from an already low W400 to W500 per transaction for large service providers, and W20 to W30 for small and medium-sized firms, and also included significant reductions for account inquiries (i.e., balance, transaction, account owner, remitter information). For existing players like Kakao Pay and Toss, this provided an immediate boost to profitability, as they have been absorbing the cost of transacting, providing their service for free.

As of February 2020, more than 17.1 million people signed up to use Open Banking services with about 30.2m accounts registered. All 18 banks have opened up their customer account information and 50 institutions (17 banks and 33 FinTechs) are providing Open Banking services using the account information made available.

The next regulatory initiative — without a specific timeline laid out just yet — will be “My Payment”, which will introduce the concept of a payment bank, so that a FinTech can hold cash balances without any bank affiliation.

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