Taiwan has long had a thriving e-commerce sector. In 2020, the e-commerce market (pure online platforms) grew at a modest pace of 16.2% to reach NT$241.2 billion (roughly US$8.6 billion), according to government data. Because Taiwan contained Covid so well in 2020, there was no explosion in e-commerce sales and thus no dramatic shift from physical to online retail. It was just another year of solid double-digit expansion.
Given solid growth in e-commerce, it is only natural that the biggest players are keen to integrate payments and other financial services with their respective platforms. There is just one problem: Current regulations around third-party payment providers are somewhat cumbersome and restrictive. Once an e-commerce platform passes a certain threshold in terms of average daily transactions processed, it must apply for a license as a third-party payment service provider.
Case in point: In 2019, ShopeePay surpassed NT$3 billion (US$107.9 million), well above the NT$1 billion legal limit for third-party service providers. Not only does ShopeePay have to apply for the e-payment service provider license, but it also must boost paid-in capital from NT$5 million to NT$500 million, the amount required from e-payment companies. As of August, the company’s application was pending.
Even if ShopeePay clears all those hurdles, it still cannot offer loans. Both legislators and regulators have expressed concern about the Taiwan BNPL service Shopee launched in November 2020 that enables consumers to pay later, or by the 15th day of the following month, without having to pay interest. In Taiwan, third-party payment providers cannot offer loans. Even though there is no specific law about BNPL yet, we can be sure that if it appears to be acting as an unregulated loan service, that regulators will be on the case soon.
There are some internet companies that have been able to enter Taiwan’s financial services sector smoothly, such as Japan’s Rakuten and Line, but their respective virtual banks include major Taiwanese incumbent financial firms as strategic shareholders. For instance, Japanese e-commerce giant Rakuten (51%) and Taiwan’s Waterland Financial Holding (40%) together hold more than 90% of Rakuten Bank. Line Financial, meanwhile, holds a 49.9% stake in Line Bank. Four incumbents – Standard Chartered, Fubon, CTBC Bank, and Union Bank – hold another 40.1% stake in the venture.
Barring a major change in the mindset of Taiwan's regulators, platform companies with a large suite of financial services, in the vein of Alibaba, Kakao, Sea Group or Grab, are unlikely to emerge except under very specific conditions - such as the two aforementioned virtual banks. Should the virtual banks prove to be successful, they may pave the way for other internet companies to move into banking, but only if they can find the right incumbents as partners.