EDITORIAL: Consumer protection key to fintech

Mon, Sep 10, 2018 - Page 6

Experiences with Chinese mobile payment services, such as Alipay of e-commerce giant Alibaba Group Holding and WeChat Pay in Tencent Holdings’ popular messaging app, have prompted many Taiwanese to praise the rapid development of financial technology (fintech) in China.

Some emphasize that the rise of various mobile payment companies, online lenders and other fintech-related services in China has not crushed traditional banking, but instead prompted greater efficiency and convenience. Some point out that fintech development in Taiwan is at an early stage, saying that only determined and continued effort from financial regulators and industry players will bring about progress.

Fintech development in China is indeed booming. Chinese increasingly elect to access services using mobile devices and the swell of online product offerings is poised to shake the financial sector, especially in the underpenetrated consumer segment.

However, rapid fintech development in China was largely thanks to an uncharacteristically hands-off approach by regulators at the beginning. Authorities only imposed tighter regulations after foreseeing the potential risks that could threaten the long-term health of China’s financial system and economy.

Thousands of online peer-to-peer (P2P) platforms in China facilitate loans, mostly from individual investors to borrowers willing to pay high interest rates, but financial regulators have closed hundreds of peer-to-peer (P2P) lending platforms. According to Bloomberg News, more than 4,500 P2P platforms tracked by Shanghai-based Yingcan Group have failed so far this year amid fraud scandals, often leaving nothing behind for tens of thousands of investors.

Since June, dozens of P2P investors from across China have protested in Beijing and Shanghai, calling on authorities to require platform operators to pay back their losses, but to no avail.

If dozens of investors protested outside of the Executive Yuan or the Financial Supervisory Commission, how would lawmakers respond? Would government officials receive serious reprimands?

The dramatic rise and fall of online P2P lending in China highlights how poorly the services are regulated, but also shows how Chinese investors ignore risks and suffer great losses when platform operators do not address consumer concerns about trust, security and credit records.

In Taiwan, leading banks and third-party providers of payment services are adopting a multi-platform approach: investing in new fintech services while cooperating with new players in the market.

From a business perspective, excessive regulation is bad for fintech development — openness leads to greater innovation and products that respond better to consumer demands — but there must be no compromise over consumer protection.

The government is right to promote fintech development, as the financial sector must keep pace with fast-changing market dynamics, but the bottom line must be that fintech service providers ensure that financial risk, information security and consumer protection are adequately addressed.

JKo Pay, a provider of mobile payment services, developed a product said to be Taiwan’s answer to Alibaba’s Yuebao investment fund, with guaranteed annualized returns of between 1.2 and 1.8 percent, but the commission late last month put a stop to it — which was laudable and necessary.

The regulations allow JKo Pay to accept deposits as stored value funds to facilitate payments and fund transfers between users, but, as an electronic payment institution, the company’s license does not grant it the same status as a bank. It cannot use guaranteed returns or interest income to attract funds and build up a client base.

Whether the commission is proactive or conservative in situations such as the Jko Pay case, an emphasis on consumer protection is crucial.