Fintechs in Taiwan ...............................
Regulatory changes, government support and clear strategy are needed to make an impact:
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.
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.
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.
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