Fin­techs in Tai­wan ...............................

Reg­u­la­tory changes, gov­ern­ment sup­port and clear strat­egy are needed to make an im­pact:

Banking Frontiers - - Highlights - mo­han@bank­ingfron­tiers.com

Tai­wan has an of­fi­cial Fin­tech Of­fice un­der the aegis of the coun­try’s reg­u­la­tor, the Fi­nan­cial Su­per­vi­sory Com­mis­sion (FSC). Set up in the late 2015, Fin­tech Of­fice func­tions as a plat­form re­spon­si­ble for the planning and pro­mo­tion of fin­tech ac­tiv­i­ties. It par­tic­u­larly fo­cuses on un­der­tak­ing stud­ies and re­search in dig­i­ti­za­tion of the fi­nan­cial ser­vices, mo­bile pay­ment, third party pay­ment, fi­nanc­ing plat­forms like peer-to-peer lend­ing, on­line in­vest­ments and IoT.

The FSC came out with a re­port in 2016, out­lin­ing its ma­jor ob­jec­tives, which in­cluded dou­bling the ra­tio of ePay­ment within 5 years from the present ra­tio of 26% via pub­lic pro­mo­tion and pri­vate sec­tor par­tic­i­pa­tion, pro­mot­ing blockchain tech­nol­ogy and the es­tab­lish­ment of a spe­cial task force for re­search on ap­pli­ca­tions of the tech­nol­ogy, sup­port­ing fi­nance in­no­va­tion ef­forts of star­tups through the Fi­nan­cial Tech­nol­ogy De­vel­op­ment Fund, en­cour­ag­ing the use of to­k­eniza­tion tech­nol­ogy for vir­tual and phys­i­cal cards, de­vel­op­ing phys­i­cal and vir­tual branches of fi­nan­cial in­sti­tu­tions to achieve the di­ver­si­fi­ca­tion of ser­vice providers and mul­ti­ple ac­cess points of their ser­vices, as well as im­prove the ex­ist­ing fa­cil­i­ties of fi­nan­cial in­sti­tu­tions and cre­at­ing an in­te­grated, se­cure on­line ID ver­i­fi­ca­tion mech­a­nism.

Tai­wan also has the Fin­tech De­vel­op­ment Foun­da­tion, an ac­cel­er­a­tor un­der FSC, which raised NT$200 mil­lion (US$6.4 mil­lion) from banks, bro­ker­ages, in­sur­ance as­so­ci­a­tions and other fi­nan­cial in­sti­tu­tions in its first fundrais­ing ef­fort. The funds are to be used to in­vest a max­i­mum of NT$2 mil­lion in 20 com­pa­nies per year over 3 years.

FAVOURABLE ECOSYS­TEM

This en­vi­ron­ment cre­ated by the gov­ern­ment has led to a fa­vor­able fin­tech ecosys­tem in the coun­try. There are sev­eral fin­tech com­pa­nies like Fu­gle, which is a dig­i­tal bro­ker­age plat­form for self-di­rected in­vestors, and Tixguru, a quant plat­form and ar­ti­fi­cial in­tel­li­gence robo-ad­vi­sor. Cher­ryPay is an­other fin­tech en­gaged in peer-to-peer money trans­fer.

In spite of these sup­port­ive mea­sures, the fin­tech sce­nario in the coun­try is lag­ging, pos­si­bly on ac­count of over-reg­u­la­tion, lack of in­vest­ment and a tal­ent short­age.

SET UP OF SAND­BOX

Tai­wan’s Leg­isla­tive Yuan has passed the Fi­nan­cial Tech­nol­ogy De­vel­op­ment and In­no­va­tive Ex­per­i­men­ta­tion Act in Jan­uary 2018, which is aimed to foster a pos­i­tive en­vi­ron­ment for new and untested forms of fi­nan­cial tech­nol­ogy. The act pro­vides for the cre­ation of a reg­u­la­tory sand­box in Tai­wan, the 10th coun­try in the world to have one, aimed at al­low­ing fin­tech star­tups a pe­riod of up to 3 years to de­velop and test their prod­ucts or ser­vices, while avoid­ing the risks as­so­ci­ated with such de­vel­op­ment or en­dan­ger­ing the rights and in­ter­ests of fi­nan­cial con­sumers.

The leg­is­la­tion of­fers le­gal pro­tec­tion to fin­tech star­tups, a first for the world. So, small firms can com­pete against ma­jor banks with lit­tle risk of crim­i­nal ac­tiv­ity or in­tel­lec­tual prop­erty breaches. Fin­techs will be able to cir­cum­vent most fi­nan­cial reg­u­la­tions ex­cept those re­lated to hack­ing and money laun­der­ing. They can do core work, such as pro­cess­ing third-party eCom­merce pay­ments and op­er­ate with­out the cap­i­tal­iza­tion of a ma­jor bank.

The re­sponse to the sand­box has been en­cour­ag­ing with sev­eral en­ter­prises ap­proach­ing the FSC, which is the com­pe­tent au­thor­ity un­der the act. The ap­pli­cants in­clude Those work­ing in the realm of blockchain, cross-bor­der re­mit­tance tech­nolo­gies, P2P on­line lend­ing plat­forms, in­vest­ment roboad­vi­sors, on­line in­sur­ance, cryp­tocur­rency plat­forms etc.

The sand­box is based on the mod­els of the UK and Sin­ga­pore and of­fers the world’s long­est po­ten­tial ex­per­i­men­ta­tion pe­riod. A key criterion is that busi­ness mod­els must break ex­ist­ing rules or reg­u­la­tions to qual­ify.

SLOWER ADOP­TION

In spite of such gov­ern­ment mea­sures to pro­mote fin­techs, it is felt that adop­tion of dig­i­tal-based tools, plat­forms and method­olo­gies de­vel­oped by fin­techs is mov­ing at a slower pace in the coun­try than in neigh­bor­ing mar­kets. Tai­wan Rat­ings, An S&P com­pany, brought out a re­port re­cently, which said over the long term, how­ever, such ser­vices hold the po­ten­tial to bring new com­pet­i­tive dy­nam­ics to the lo­cal bank­ing sec­tor.

The re­port said fin­techs are cre­at­ing new

ef­fi­cien­cies and ser­vices among the fi­nan­cial ser­vices sec­tor glob­ally. But, the pace of dereg­u­la­tion to sup­port new fi­nan­cial tech­nolo­gies has been more grad­ual in Tai­wan than in other coun­tries and re­sulted in less in­no­va­tion and take-up. Be­sides, Tai­wan also lacks mean­ing­ful in­cen­tives to ac­cel­er­ate the de­vel­op­ment of fin­tech, such as to at­tract in­vest­ment and tal­ent.

DIG­I­TAL ONLY BANKS

Mean­while, the FSC is un­der­stood to be study­ing the pos­si­bil­ity of al­low­ing banks to set up and op­er­ate dig­i­tal only banks as part of its pro­mo­tion plans for the fin­tech sec­tor. FSC chair­man Welling­ton Koo said while many banks oper­at­ing in Tai­wan pro­vide clients with on­line bank­ing ser­vices, the coun­try cur­rently bans exclusive dig­i­tal banks with no phys­i­cal out­lets. How­ever, in or­der to im­prove the com­pet­i­tive­ness of the lo­cal bank­ing sec­tor, the FSC would study the fea­si­bil­ity of open­ing pure dig­i­tal banks and Koo has listed this as a pri­or­ity pol­icy for the com­mis­sion in 2018.

Once dig­i­tal banks start func­tion­ing,

tra­di­tional banks would have to de­velop the tech­nol­ogy needed to drive the new ser­vices, which could ac­cel­er­ate the pace of fin­tech de­vel­op­ment and pro­mote con­sol­i­da­tion of the lo­cal bank­ing sec­tor, feels Koo.

FO­CUS ON IOT

Tai­wan’s Na­tional De­vel­op­ment Council, which is the pol­icy-planning agency of Leg­isla­tive Yuan, wants Tai­wan to be a des­ti­na­tion for com­pa­nies and de­vel­op­ers look­ing for a foothold in the Asian fin­tech mar­ket. It wants the coun­try to be at the fore­front of in­no­va­tion and R&D, espe­cially re­lat­ing to the IoT. It be­lieves that IoT brings new op­por­tu­ni­ties for fi­nan­cial in­sti­tu­tions in the realm of col­lec­tion and pro­tec­tion of data. Ex­ist­ing fin­tech IoT ap­pli­ca­tions that could add to con­sumer con­ve­nience in­clude ATM trans­ac­tions based on smart­phones or smart­watches rather than debit cards, or car in­sur­ance rates geared to pol­i­cy­hold­ers’ driv­ing be­hav­ior. The strat­egy is to build a com­plete IoT sup­ply chain by in­cor­po­rat­ing the coun­try’s hard­ware ad­van­tages into soft­ware ap­pli­ca­tions.

BLOCKCHAIN, ROBO

Yet an­other area is blockchain and roboad­vi­sory. How­ever, for this co­op­er­a­tion be­tween reg­u­la­tory au­thor­i­ties and fi­nan­cial in­sti­tu­tions is needed so that su­per­vi­sory and se­cu­rity mea­sures can be en­hanced through these tech­nolo­gies. Taipei-based O-Bank had re­cently launched its robo-ad­vi­sory plat­form and the ser­vice had tremen­dous re­sponse from cus­tomers.

While Tai­wan can be quite com­pet­i­tive com­pared to Sin­ga­pore or Hong Kong in terms of mar­ket size for the fin­techs be­cause of its un­der­stand­ing of the China mar­ket, many ob­servers of the fin­tech sce­nario feel that for the coun­try to be­come a fin­tech hub like Sin­ga­pore or Hong Kong, the gov­ern­ment has to cre­ate a clear, com­pre­hen­sive fin­tech strat­egy that opens up the mar­ket to en­cour­age de­vel­op­ers to do their in­no­va­tion, R&D, and en­trepreneur­ship. Just by mark­ing a pres­ence in the scene is not enough for global play­ers to come in and work with the fin­techs, they aver.

Par­tic­i­pants at a blockchain con­fer­ence in Taipei

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