4 Sept 2019
Taiwan Takes First Belated Steps into the World of Virtual Banking
Nearly 25 years after the concept was first launched in the US, Taiwan has made its first tentative moves towards embracing internet-only banking, with three licence-winning consortiums now gearing up to launch in March 2020.
Taiwan has been something of a late arrival to the world of the internet-only bank – certainly when compared to such early-adopters as the US, western Europe, China, Japan or South Korea. While the US got its first virtual bank in 1995, followed by the UK in 1999, Japan (2000), China (2014) and South Korea (2015), Taiwan only licensed its first such financial institution at the end of July. Perhaps surprisingly, given its status as a global financial hub, Hong Kong is one of the few jurisdictions to be similarly tardy, having issued its first virtual bank licences just four months before Taipei rubber-stamped its own.
For Taiwan, however, the July announcement marked the end of a lengthy consultative process, one that saw the territory only finalise its internet-only banking policy in April 2018. The following November, it issued application guidelines and began accepting submissions from would-be licensees.
Overall, many of the requirements were identical to those applying to more conventional banking institutions, including a stipulation that each bid had minimum paid-in capital of NT$10 billion (US$318.4 million). In terms of backers, each bid also needed to be endorsed by an existing financial-services business, such as a bank or an insurance / securities company. The total shares held by such institutions also had to account for least 40% of the total paid-in capital, with the shares subscribed by a single bank / financial holding company having to exceed 25% of the total paid-in capital.
The overall licensing process was co-ordinated by the Financial Supervisory Commission (FSC), the state body with responsibility for regulating the securities markets, banking and the insurance sector. Initially, the official line was that only two virtual banking licences were on offer. The rationale for this was that Taiwan's banking sector was already verging on the over-populated, with some 37 operators already jostling for the business of just 24 million residents. In the end, with many industry players unconvinced of the viability of a standalone digital-banking platform, only three applications had been received by the 15 February deadline – LINE Bank, Rakuten International Commercial Bank and Next Bank.
Inevitably, speculation was high as to which would fall at the final hurdle. In the end, the regulator confounded all expectations by announcing, on 30 July, that all three had been successful.
Explaining this change of heart, Wellington Koo, the Chairman of the FSC, said: "As all three applicants had different business models and different target customers, we decided to give them all the go-ahead, believing this to be in the best interest of consumers."
Overall, with its shareholders drawn from the telecoms, finance and retailing sectors, Next Bank had the most diverse portfolio of backers. Taking point in the bid was Chunghwa Telecom, Taiwan's largest telco, with initial support from New York-headquartered Citibank, Taipei-based e-commerce operator PChome, and Easycard, the company behind Taiwan's public transport smartcards. Subsequently, however, the three withdrew from the bid.
This saw Chunghwa increase its shareholding to 41.9% from 30% and enlist a number of additional consortium members – Mega Bank (a Taipei-headquartered commercial bank), the Shin Kong Group (a Taipei-based trading and financial-services conglomerate), Pxmart (a domestic supermarket operator), KGI Bank (a Taipei-based consumer bank) and Tradevan (a Taiwanese logistics business).
LINE Bank, unsurprisingly, was primarily backed by LINE Financial Taiwan, with the digital-payment processor taking a 49.9% stake. The Taipei Fubon Commercial Bank then held a further 25.1%, with two local financial-services companies (CTBC Bank and the Union Bank of Taiwan), one overseas bank (Standard Chartered) and two Taiwanese telcos (Taiwan Mobile and FarEastTone) having minority stakes.
The only purely financial services-backed bid, the Rakuten consortium consisted of IBF Financial Holdings, a Taipei-based securities brokerage (49%), and Rakuten, the Japanese e-commerce giant (51%).
With the FSC estimating it will take about eight months for the licence holders to launch formally, it is now expected that Taiwan's first internet bank will start trading in March next year at the earliest. Following that, according to the bidders' own figures, it will then take some three-to-five years before they enter the profit phase.
Robert Kang, Special Correspondent, Taipei