Mon, Aug 06, 2018 - Page 6 News List

EDITORIAL: Juggling rules for Web-only banks

Bank branch closures have accelerated in Taiwan, as banks around the world move their financial services online and more consumers adopt their Internet-based services. Many banks find they are no longer able to justify the cost of brick-and-mortar branches.

According to statistics compiled by the Financial Supervisory Commission (FSC), there were 13 bank branch closures in the first half of this year, with 3,404 branches still in operation, the lowest number in seven years.

The implication of this trend is clear: Brick-and-mortar branches need to adopt different business models to survive in the digital era. In addition, banks have to offer contingency plans and training programs to help employees adjust their roles or transition to other jobs.

Microsoft Corp founder Bill Gates said as early as 1994 that, in the future, banking would be needed, but banks would not. Going to a bank to interact with a human behind a counter might become a thing of the past. Even though this might not happen soon, as new financial technology services are steadily rolled out, it is certain that challenges to existing players are real and growing larger.

The upcoming launch of Web-only banks in Taiwan is one of those challenges, which might not only result in the number of bank branches falling further, but also affect financial stability, information security, money laundering and consumer protection.

Even though the establishment of Internet-based banks in Taiwan is moving at a slower pace than in some major world economies, there is no denying that innovative or disruptive technologies have forced virtually all industries to continue revising their business models, while traditional banks appear to have lagged behind in digital innovation.

The FSC in late April announced plans for Web-only banks, with regulations to cover digital lenders, as they do their brick-and-mortar counterparts, including having paid-in capital of NT$10 billion (US$325.7 million).

Under the commission’s plans, the government intends to issue only two Web-only bank licenses in light of an already crowded market.

The Web-only banks can provide the same type of services as traditional banks do, but they cannot open any physical branches, nor set up automatic teller machines, the commission said.

The commission had decided banks or financial holding companies must have a 50 percent stake in a Web-only bank to ensure that it complies with banking regulations, while non-financial companies — such as e-commerce operators and telecoms — can own the other half. However, on Friday, the commission said it is considering allowing non-financial companies to hold stakes of up to 60 percent following appeals by technology firms over concerns about financial innovation and operational flexibility.

So far, the commission remains firm on its position that financial institutions should lead the management of online banks. It still wants financial companies to serve as the biggest single shareholder in Web-only banks, hold a stake of at least 25 percent and include the ventures on their financial reports. Therefore, despite its willingness to increase non-financial companies’ collective interest in online banks, the commission wants the Web-only banks to innovate responsibly and meet money laundering, data security and consumer protection standards under the guidance of financial firms.

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