FinTech: Taiwan deserves and can deliver more | News from Taiwan
TAIPEI (Taiwan News) — To get the simple thing out of the way, FinTech is simply a combination of the words “financial” and “technology.”
It is technology-enabled financial innovation that is changing the way financial institutions offer – and consumers and businesses use – more financial services. FinTech has a cousin called RegTech (Regulation and Technology), but for now we’ll stick to FinTech as it’s certainly a buzz word these days in Taiwan and globally.
At the end of October 2022, there was a large turnout for FinTech Taipei at the World Trade Center in Taipei City. The Financial Services Supervisory Commission (FSC) was the event’s adviser, while the organizers were the Taiwan Academy of Banking and Finance (TABF) and the Taiwan Financial Services Roundtable.
I attended this event and while there was certainly a buzz and the expected crowds, I wondered afterwards if much of the FinTech I saw on display was really a display of cutting edge technology or just a showcase of new payment systems. Don’t get me wrong, payment systems qualify as FinTech, but I want more, and I think Taiwan deserves and can deliver more.
FinTech should fundamentally change the way financial services firms operate by making them more efficient and able to offer a better quality of services to their clients. Also by being more transparent with their regulators.
For FinTech to flourish, you need world-class talent, locally based expertise, a forward-looking approach to regulation, access to capital and proximity to an innovative financial services sector. We certainly have local talent and world-class expertise.
We also know that FinTech has the clear support of Taiwan’s government, FSC and related industry associations in Taiwan. Less clear to me is whether we have an innovative financial services sector.
What is real history?
Regarding Taiwan’s history with FinTech, it can be argued that it was not until at least 2014 that Taiwan began to understand the positive impact of FinTech’s continued technological development in the global financial sector and resulting changes in the financial value chain.
In 2014, FSC came up with the concept of FinTech 3.0. It recognized five changes needed in the financial sector in Taiwan:
Digital technology as core competence in the sector
- Bank branches are moving to a more support orientation
- The Internet is becoming the most important marketing strategy
- Social media and real-time online transactions make customers more dominant
- Financing merger with e-commerce
I think most of these changes have happened to some degree, but perhaps not quite as expected in 2014.
At the end of 2015, the FSC continued to propose further measures for the continued development of FinTech, with plans to promote support from FinTech start-ups and to help other related industries. These proposals led to the FSC also establishing a FinTech office reporting directly to the FSC, and by the first quarter of 2016 we saw the publication of the FinTech Development Strategy White Paper.
This outlined Taiwan’s vision and strategy for promoting innovative FinTech services. The “vision” included five facets of Taiwan’s financial services that would benefit from FinTech:
- Payments
- Insurance
- Financing
- Fundraising
- Capital management
- Market supply
Again, I think to some extent, the proposals in the white paper remain relevant, but they did not provide the tipping point for a vibrant FinTech market in Taiwan.
The next step in Taiwan’s journey saw the development in 2018 of a Regulatory Sandbox for startups and financial institutions by providing a platform where startups and financial institutions can experiment freely without threatening the wider financial system. But to be honest, the number of institutions that have taken advantage of the Sandbox is still low, perhaps due to internal obstacles in the Sandbox.
As of June 2022, only 15 applications had been received from institutions that wanted to benefit from Sandbox. Of that number, nine have been approved by the FSC and five have been completed.
The FSC also implemented a Business Trial mechanism exclusively for financial institutions in 2019 to provide a dedicated test environment for financial institutions, and as of May 2022 there have been 47 applications received and 36 cases approved (better numbers than from Sandbox).
In its honor, FSC also created FinTechSpace (the first FinTech-focused co-working space in Taiwan). The intention is to provide a technology-based environment to stimulate and accelerate the latest FinTech innovation.
FinTechSpace aims to bring together the entire Taiwan FinTech ecosystem and open the window for Taiwan’s FinTech industry to attract campus talent and tech startups from around the world.
Right time and place
FinTechSpace remains active and offers a variety of programs for domestic and foreign participants, but I think Taiwan needs to be more proactive in promoting these programs. I will discuss FinTechSpace in more detail in future articles.
We have also seen the FSC approve internet banks that have rapidly accumulated customers and are likely to continue to do so, but their success is certainly challenged by Taiwan’s oversaturated banking market. Simply put, even in 2023, Taiwan is overbanked and burdened with aging legacy information technology systems.
I have no doubt that the FSC sees FinTech as an integral part of the modernization of Taiwan’s financial markets, and in future articles we will also examine some ways in which I believe Taiwan’s financial markets can achieve these goals.
Taiwan’s information technology infrastructure is extremely well developed, although as mentioned above, the infrastructure is aging. Taiwan is a strong market for e-commerce, online entertainment, mobile payment and other technology-driven services, but it is still mainly a domestic market and foreign payment service providers, especially those offering solutions for cross-border transactions, face intense competition with local banks and regulatory obstacles when they enter the market.
There is appetite, development and improvement happening in Taiwan’s FinTech environment, albeit slowly even in the face of the Taiwan government and FSC maintaining a consistent message about the importance of FinTech in Taiwan.
The government of Taiwan is clear that FinTech must be at the heart of the important Green Finance Action Plan 2.0 and 2050 Net-Zero Pathway initiatives.
Despite the indicators of growth and support from the government and regulator, I think it would be wrong to assume that Taiwan’s FinTech market is set for clear sailing. The FinTech market certainly made rapid progress in 2021, but the biggest obstacle to further development remains strict regulation of the financial industry.
Another practical obstacle is user habits. Consumers in Taiwan have long been used to paying by credit card and collecting the goods they have ordered online in “convenience stores”.
While COVID-19 saw both financial service providers and consumers trying to reduce brick-and-mortar banking activities, this has not provided sufficient impetus to the Taiwanese Fintech market.
Moreover, if e-payments, often only supported by credit card applications, represent the largest FinTech product in the Taiwan market, I believe that FinTech still has a long way to go.
I applaud all the achievements to date, but I know that Taiwan deserves and can do better.
Paul Shelton has a 30-year history in banking, working as Head of Legal & Compliance and MLRO for the Asia Pacific branches of major international financial institutions in Japan, Singapore, Australia and Hong Kong. He also has experience working with financial regulators across the Asia Pacific and provides consulting services to Taiwanese financial and non-financial industry associations in all aspects of compliance, AML/sanctions and governance. He lives in Taipei.