In July 2019, the Financial Supervisory Commission of Taiwan (FSC) gave its approval for the establishment of three virtual banks, though none of them have launched yet.
Line Bank, a consortium led by Japan’s Line, was amongst the three companies to receive the green light.
Line Bank will target Taiwan’s retail banking market with a particular focus on consumers in the Line ecosystem. It will be offering them an array of conventional financial services such as deposits, loans, payments, and insurance, as well as some innovative services such as bill-splitting and tourism advice.
Line Bank will be entering the market with an edge, thanks to Line’s strong brand cachet and user base in Taiwan.
Domestically, Line’s messaging app counts 21 million users, or about 91% of the population. Its digital wallet, Line Pay, is the market leader in mobile payments with a 27.3% market share, according to the Taipei-based Market Intelligence & Consulting Institute (MIC). Line Pay counts 6 million users and 120,000 merchant partners, including leading Taiwanese e-commerce platforms like PChome, Shopee, and Yahoo.
Line’s fintech arm, Line Financial, holds a 49.9% stake Line Bank. Other stakeholders include Taipei Fubon Bank, which holds a 25.1% stake, as well as CTBC Bank, Union Bank of Taiwan, Standard Chartered Bank, Taiwan Mobile, and Far EasTone, with each having 5%.
Line Bank will compete against Next Commercial Bank (Next Bank), a consortium led by the country’s largest telecom operator Chunghwa Telecom and which includes three financial institutions and the grocery retailer PX Mart. Chunghwa Telecom counts 10 million subscribers, and PX Mart has nine million members.
Next Bank will initially deliver customer accounts, deposits and loans, and has plans to provide mortgages and wealth management in the future. The bank will leverage Temenos’ technology and hopes to reach one million customers in the first three years.
Chunghwa Telecom owns a 41.9% stake in Next Bank, whilst Mega Financial Holding owns a 25.1% stake.
Finally, the third upcoming virtual bank is Rakuten International Commercial Bank, which is 51% owned by Japanese e-commerce firm Rakuten and 49% by Taiwanese IBF Financial Holdings.
Rakuten International Commercial Bank will target people aged 35 to 55, Rakuten’s own customers and those who rely on smartphones or are interested in “Japanese-style financing,” the FSC’s chairman Wellington Koo said in July 2019.
The virtual bank will allow clients to open a dual-currency account and easily withdraw yen using a Taiwanese card.
Rakuten is the only non-bank player heading one of Taiwan’s upcoming virtual banks that have significant experience in the financial industry. It set up Rakuten Bank in Japan in January 2000, which now has about 7.2 million users.
COVID-19 delays the launch of Taiwan’s first virtual banks
The three virtual banks were supposed to go live this summer but the COVID-19 pandemic has delayed the launch date.
Out of the three upcoming virtual banks, only Rakuten International Commercial Bank has completed the one-month operation simulation test, a pilot period required by the FSC to ensure the banks are in shipshape. In July 2020, the virtual bank formally applied for an operating license with the FSC after completing its pilot period, according to a Taipei Times report.
Banking Bureau Deputy Director, Sherri Chuang, told the Taipei Times, that one of the reasons why the virtual banks were unable to launch on schedule was because some of them had hired foreign engineers to set up their IT systems, and the engineers had been unable to enter Taiwan, Chuang said in July.
Nevertheless, the FSC expects the three virtual banks to commerce operations by the end of 2020.
Virtual banks arrive in Asia
Taiwan’s virtual banking licensing framework was introduced as a way to increase competition, spur innovation and promote financial inclusion. It follows a broader trend that has emerged amongst Asian regulators.
In nearby Hong Kong, the Hong Kong Monetary Authority (HKMA) has granted eight licenses. Five have launched operations, one is currently piloting virtual banking services, and two are still conducting trial runs.
In South Korea, the Financial Services Commission (FSC) has approved two virtual banks but is planning to grant more licenses.
