There's more than semiconductors in Taiwan: fintech and blockchain are rising stars
Taiwan's fintech sector is growing. The pandemic outbreak represented a call to action for banks and corporations to invest in digital strategies able to respond to global disruptions. As well as in other markets, the Covid-19 irremediably accelerated the transition - in Taiwan too - to virtual remote means and online applications for everyday life uses.
The latest EY Global FinTech Adoption Index, a survey of 27,000 digitally active consumers in 27 markets, showed that Asia retains its global leadership in FinTech adoption, however, Taiwan fintech sector is only at the beginning of its path. Despite its huge potential.
We always heard about Taiwan’s lacking fintech capabilities. And it’s a curious phenomenon. Taipei features many characteristics conducive to innovation around financial services, including a strong talent pool, high rates of internet/mobile penetration, widespread access to credit cards and bank accounts, and a generally higher willingness to pay and save compared to other, more emerging countries in the region.
How many fintechs are there in Taiwan?
Currently, less than 60 fintech players operate in Taiwan, in contrast to around 350 in South Korea, 600 in Hong Kong, and 1,200 in Singapore. Regulations are often cited as a primary deterrent, however since 2017, the government wants to change that perception.
So many ATMs
Taiwan is largely considered “overbanked” by most standard measures. There are 36 domestic commercial banks and 5,055 branch offices catering to a population of 24 million people, according to Taiwan’s Central Bank.
The high concentration of financial services in Taiwanese cities has led to high levels of convenience, demonstrated by the ratios of 141 ATMs per 100,000 people, but the well-established banking system, the penchant for digitalisation among financial institutions is still sparse.
Taiwan’s financial sector is known for its conservative outlook and rich pools of foreign reserves – the fifth-largest in the world at $546 billion for a small country. Thanks to its strict regulatory environment, Taiwan isn’t considered a regional financial hub like neighbors Hong Kong, Singapore, Tokyo or even Shanghai.
The tides, however, seem to be gradually changing. In 2016, the Financial Supervisory Commission (FSC) which oversees all finance sectors unveiled a strategy to change fintech development in Taiwan. Since 2016, the FSC changed radically policy with the aim of doubling e-payment penetration, promoting blockchain adoption, creating a fintech incubation hub, while issuing an industry-wide mandate for banks to collaborate more with startups and digitalise some of their existing service offerings. In 2018 the country’s largest P2P lender LnB successfully established a customer data-sharing agreement with Standard Chartered Bank Taiwan.
After that, Fubon Financial, towards the end of 2020 announced its partnership with local blockchain developer AMIS to launch a blockchain-based money transfer service.
Blockchain is The Real Rising Star
As a global manufacturer of electronic goods with an export-driven economy, Taiwan is very cautious in preventing money laundering or any financial crime that might undermine its status as a reliable trading partner. In this framework blockchain could be a useful ally but blockchain, and FinTech, are relatively lightly controlled by the government.
Taiwanese legal environment on the blockchain is notably very vague on such important questions as Intellectual Property Ownership (IPO), data protection, financial regulation and taxation. For example, a definition of IPO as related to blockchain activities in order to ratify ownership of authors more efficiently and facilitate transactions through smart contacts is still to be drafted.
With regard to financial regulations, Taiwan’s FSC has no rules regarding financial transactions made through blockchain and is expected to draft a new regulation to establish a safe environment for experimentation related to innovative financial technologies.
E-payments is another area that the government has been promoting heavily, setting an ambitious goal of 90 per cent penetration by 2025. Heavy tax incentives for mobile payment adoption has led transactions to reach NT$120.9 billion (US$4.15 billion) in the first seven months of this year, growing 127 per cent from the year prior, with the lion’s share dominated by JKOPay, LINE Pay, and Apple Pay.
The Taiwan Blockchain Alliance, a milestone on Taiwanese FinTech policy
Despite contradictions, the Taiwan authorities consider blockchain a cornerstone of the FinTech industry, and banks are discussing partnerships with US and Japan-based companies and banks. In June 2019, the National Development Council formed the Taiwan Blockchain Alliance to increase policy coordination and implement a blockchain proof of concept.
This association is an ad-hoc group of researchers, financial experts and policymakers aimed at providing the government with expertise and consultation on how to manage the business of blockchain and FinTech. Local financial institutions also participate in international blockchain alliances such as R3, EEA, Quorum and Hyperledger.
By building a platform between the private sector and the government, this association aims to enable two-way information exchanges, encourage international cooperation, promote field application and talent cultivation, and create a sound industrial development environment. An early success was the framing and adoption of the Money Laundering Act in mid-2021 and experts, especially from the US, expected that financial institutions will continue investing in blockchain in the long-term.
Now Taiwanese Going Global. XREX Arrived in Lithuania
“Taiwan makes the most of its capabilities, skills and resources to serve as a world-class blockchain incubation center”, said Taipei Mayor Ko Wen-Je. And now Taiwanese firms are ready to conquer others market. XREX, a Taiwanese blockchain Fintech company, has chosen Lithuania as its entry point to the EU market.
After recently becoming a crypto asset service provider in Lithuania, the company plans to entrust operations, AML, and other functions to its Lithuanian office. The Taipei-headquartered company has developed a series of blockchain-driven products, including BitCheck, an online escrow service, and XREX Exchange, the world’s only crypto-fiat exchange that supports both the US dollar and the Indian rupee.
Raising $17 million in a pre-Series A funding round last year, the company also seeks to bring the benefits of crypto to the underserved users in emerging markets, including India, Africa, and the Middle East, going to the same markets where Chinese behemoths already are own the boots on the ground. The move was clearly anti-Chinese, but could change our perspective concerning taiwanese fintech sector.
As we have seen, Taiwan is often not at the top of mind when it comes to FinTech in this part of the world. However, experts believe that Taiwanese fintech market will grow soon thanks several factors will help keep the island on the cutting edge: a new openness to innovation by regulators; the advent of virtual banks; the growth of the API ecosystem; and, finally, the entrance of new competitors, not baked by Chinese financial and technology giants. Taiwan is back.