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Taiwan’s First Virtual Banks Debut Strong

Though the Taiwanese government greenlit the operation of its first three online-only banks in 2019, they faced pandemic-induced delays. Still, when they went live late last year, they’ve enjoyed brisk operations. Today, the first two virtual banks have quickly accumulated a significant customer base while the third is on the way.

Financial Technology (FinTech) via virtual banks are not unique to Taiwan. Across East Asia, digital banks have been gaining traction from financial centres in the region. However, it’s still an uphill battle for virtual banks in the island nation. Taiwan’s oversaturated banking market will likely require that the digital lenders adopt new tactics and technologies to become truly competitive. In short, they will have to use technology to the hilt.

To date, the Taiwan market has 37 retail lenders to serve a population of over 23 million. It is not that demand does not exist for their services, however. Taiwan’s high degree of smartphone penetration, growing preference for contactless transactions, and the generally weak digital offerings of incumbent banks offer the digital lenders an opportunity.

To add to these challenges, Taiwan’s financial industry is fairly conservative. As firms and government regulators stay cautious, innovation in the FinTech industry is achieved in measured steps. Digital banking in Taiwan is in its early state. Strictly speaking, there are no virtual banking start-ups on the island in the traditional sense of the word. Rather, two of Asia’s largest platform companies and Taiwan’s preeminent telecoms provider have teamed up with some of the island’s most established financial institutions to form three consortia licensed to provide banking services.

There are, however, a few caveats. One, digital banks cannot offer these services from physical branches. Two, they cannot conduct business on the same scale as traditional banks. Nonetheless, those issues come also with genuine advantages. Digital banks can make the most of their apps. Against the backdrop of ageing IT bank practices from traditional lenders, virtual banks should attract younger Taiwanese who spend a lot more time online via their smartphones. Indeed, that shows that while Taiwan is overbanked, its FinTech industry is underutilised.

The numbers speak for themselves. One of Taiwan’s virtual banks has accumulated about 600,000 customers since opening in 2021. That is a strong performance in such a short period of time. One key strategy they followed is attracting the right clientele. Over 75% of their users are aged 20 to 40, clearly the most tech-savvy of the population.

The other virtual bank is paving its path differently. It does not boast of as many accounts; instead, it attracts bigger deposits. Though it has only nearly a tenth of the number of the first virtual bank’s users, its deposits are nearly a fourth. So it has a total deposit of NT$5.4 billion compared to the first bank’s NT$20 billion.

Taiwan’s FinTech industry may not be moving as fast as anticipated, but it’s on the right track. An example of its commitment is its recent regulation of cryptocurrencies. The digital infrastructure that Taipei is putting up should encourage everyone to join the country’s digital transformation.

Additionally, Taipei has set up an AI HUB that should put the island nation on the map when it comes to Artificial Intelligence. As reported on OpenGov Asia, Taiwan is set to be a regional AI hub, if not a global one. Add to that picture the chip industry that is prepping itself for the advent of electric cars.

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