Taiwan issues three new virtual banking licenses

On July 30, financial authorities in Taiwan announced that they had issued the first three virtual banking licenses to consortiums led by Taiwanese and Japanese investors. This occurred following moves by regulators in other Asian markets who also issued such licenses recently.

The licenses were granted to LINE Financial Taiwan. This group is led by Japanese app operator LINE Group and also includes Taipei Fubon Commercial Bank and Standard Chartered as well as Next Commercial Bank. This bank is led by Taiwan telecom operator Chunghwa Telecom.

An additional license was also granted to Rakuten International Commercial Bank. They are operated by Rakuten Inc, a Japanese e-commerce firm, and IBF Financial Holdings, a Taiwanese based firm.

Ferguson Gordon, the director at Accenture’s Banking, explained that this should create a dramatic change in the financial markets across Asia. “We’re likely to see these new players in Taiwan focusing on specific markets in need of specialized services and products.”

According to Gordon, millennials are looking for other types of financial institutions in which to conduct business. In searching for institutions to provide microloans they want a company that provides more efficient banking as well as quicker approval of credit applications. This is what virtual banking offers them.

The issuing of three new licenses in Taiwan follows Hong Kong issuing eight online-only licenses to financial institutions recently. This included affiliates such as Alibaba Group Holding Ltd and a consortium led by Standard Chartered.

The issuing of these types of licenses across Asia is a wake-up call to traditional financial institutions. The new competition will require them to provide more efficient processes not only within their standard banking practices but also in the services they provide.

These institutions are already showing a growing concern. The average return on equity in Asian banks was 10.1% in 2018 but is expected to drop to as low as 6.4% by the year 2023. This prognosis will require traditional banks to improve conditions quickly or find themselves struggling to survive.