Japan’s effort to nudge its more than 100 struggling regional lenders into the digital age is floundering.

More than a year after rules to spur open banking were issued, small lenders are stuck in a back-and-forth with startups over fees for access to client account data, according to a Financial Services Agency official. Fintechs that must reach agreements with individual banks before a May deadline say they don’t have the resources to pay hefty charges or crisscross the country convincing hold-outs.

The impasse risks embarrassing policy makers keen to lift Japan off the bottom of a ranking on fintech adoption. A successful move into open banking would put the Asian nation in the company of the U.K. and Australia, which are freeing up data access to spur competition and create innovative financial solutions.

Japan is hoping for voluntary partnerships where startups help overhaul a stodgy industry hammered by years of negative interest rates, deflation and, for rural banks, depopulation. Mired in shrinking profits as the hinterland ages and empties of its young, some lenders are reluctant to ink deals that promise vague future returns but demand immediate investments.

“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 Inc.

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 Ltd. and North Pacific Bank Ltd. 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.”

— Taiga Uranaka and Yuki Hagiwara (Bloomberg)