Open banking was expected to be a game-changer, fostering innovation by enabling fintechs to access bank data securely with customer consent. However, the high and inconsistent costs of accessing application programming interfaces (APIs) from banks are proving to be a significant hurdle, according to the latest report from the Commerce Commission.
Open Banking’s Promise vs. Reality
Open banking APIs allow third-party providers, such as fintech companies, to access customer account information and initiate payments, paving the way for innovative financial products and services. These APIs are designed to democratize access to financial data, enabling new entrants to compete with established banks.
However, the Commerce Commission’s findings suggest that the current pricing models for API access are “damaging the nascent market” and hindering competition.
- High API Costs: The fees charged by banks for API access are significant and may be unaffordable for smaller fintechs.
- Pricing Variability: Fees differ greatly between banks, making it difficult for fintechs to predict and manage costs.
- Lack of Transparency: Pricing structures are not clearly disclosed, further complicating decision-making for third-party providers.
Together, these factors are limiting fintechs’ ability to develop competitive products and stifling the growth of the open banking ecosystem.
Breakdown of API Costs by Bank
Here’s how some major banks are structuring their API fees:
| API Provider | Payment Initiation API Call Fee | Account Information API Call Fee |
|---|---|---|
| ANZ | – 0.25% of payment amount (up to $1 max) for businesses. Examples: – $20 payment: 5c – $40 payment: 10c – $5,000 payment: $1 |
– Charges based on cost recovery only. Onboarding and minimum monthly fees currently waived. |
| ASB | – Currently under review. Range: $0.00 – $0.20 | – Currently under review. Range: $0.00 – $0.20 |
| BNZ | – $30 monthly flat fee (GST exempt) – 600 free API calls; $0.05 per call beyond this |
– $30 monthly fee (+ GST) – 3,000 free requests; $0.01 per request beyond this limit |
| Westpac | – Up to 30c per API call; bilateral agreements determine final pricing | – Pricing negotiated based on volumes and customer demand |
Observations:
- ANZ has a percentage-based fee, capped at $1 per transaction, which may work better for smaller transactions but could deter fintechs handling larger volumes.
- BNZ offers a flat monthly fee and a limited number of free calls, which might appeal to fintechs with predictable API usage.
- Westpac relies on bilateral agreements, introducing uncertainty for fintechs trying to plan their operational costs.
The Impact on Fintechs
For fintechs, these costs pose significant challenges:
- Barrier to Entry: High fees make it difficult for startups to afford the initial costs of integrating with banks, effectively locking them out of the ecosystem.
- Uncertainty: Inconsistent pricing and a lack of transparency hinder planning and budgeting for fintechs.
- Innovation Stifling: High costs reduce the resources fintechs can allocate to developing innovative services, defeating the purpose of open banking.
This could lead to a scenario where only well-funded fintechs can afford to compete, reducing diversity and competition in the market.
Banks’ Perspective: Cost Recovery and Ecosystem Maturity
Banks argue that the costs reflect the investment required to build, maintain, and secure their API infrastructure. For instance:
- ANZ emphasizes that its charges are meant for cost recovery and that it collaborates with third parties to understand their use cases.
- Westpac mentions that its pricing is based on factors like volumes and customer demand and may evolve as the ecosystem matures.
While these arguments have merit, they also highlight the need for standardized pricing and greater transparency to ensure fairness and encourage innovation.
Possible Solutions to Level the Playing Field
To address these challenges, the Commerce Commission and industry stakeholders could consider the following steps:
- Standardized Pricing Models: Introducing uniform pricing across banks could reduce complexity and foster competition.
- Transparent Fee Structures: Banks should clearly disclose all API-related costs to enable fintechs to make informed decisions.
- Regulatory Intervention: Policymakers could cap API fees or incentivize banks to offer free or low-cost access for startups.
- Collaboration Platforms: Creating a centralized platform for API access across banks could streamline the process and reduce costs.
The Road Ahead for Open Banking
Open banking holds immense potential to transform the financial landscape, but the current approach to API pricing threatens to undermine its goals. By addressing the Commerce Commission’s concerns and fostering collaboration between banks, fintechs, and regulators, the ecosystem can create a more inclusive and innovative environment.
For now, fintechs must navigate these challenges carefully, balancing the potential of open banking with the realities of high and varied costs. The next steps taken by banks and regulators will be crucial in determining whether open banking fulfills its promise or becomes another missed opportunity.
