Taiwan's banks are rushing to stake a claim to an ever-growing and more sophisticated on-line banking and e-commerce market, government officials and analysts say.
As a measure of the impending boom, investment by banks in the island's four-year-old Internet banking sector will almost double in the coming year despite regulatory and security bottlenecks.
Indeed, Taiwanese banks and foreign banks with branches in Taiwan are accelerating Internet banking investments in order to capture a secure customer base in the business-to-business (B2B) e-commerce market before an anticipated influx of foreign competitors after Taiwan's expected entry into the WTO.
Foreign banks with branch networks in Taiwan, such as Citibank, ABN AMRO, Standard Chartered and Deutsche Bank, have invested heavily in Internet banking and are leveraging large overseas networks to speed up the development of B2B e-commerce operations.
"We are making the best of our 140-year presence on the mainland to attract Taiwanese companies with mainland factories to our international cash management service," Carl Wagner, head of cash management at Standard Chartered, said.
Although many Taiwanese companies sidestep a Chinese ruling against lending by foreign companies by using Chinese subsidiaries set up in Hong Kong, there remained a sizeable market opportunity, Wagner said.
"PRC rules against foreign companies lending to each other mean that there is an important niche open for foreign banks to offer inter-company loans and other cash management services," he said.
Citibank's business-to-business e-commerce head, Jeremy Ou, says local banks are unable to match the firm's soon-to-be-launched B2B service.
"They don't have the global network we have ... and the Taiwanese government forbids Taiwan's banks paying Chinese banks directly such as over the Internet. They are forced to use a lengthy manual procedure which is processed through New York, with the resulting currency exchange fees," Ou said.
Citibank is the only foreign bank possessing a Chinese-language local clearing system and extensive support services and was making all efforts for a speedy launch of planned B2B services that are currently in the pilot stage, Ou said.
"We have a 20-person help-desk here in Taiwan and 30 staff in Singapore dedicated to e-commerce development in Asia and we are also outsourcing. If we don't do it now, we'll regret it later."
Buyers and sellers
E-commerce operations include buyers sites, such as Compaq's recently launched Taiweb, linking the global computer firm with its downstream suppliers of PCs and components, and sellers sites, where smaller producers sell to a large number of buyers.
Internet banking, an important adjunct to e-commerce, is still in its infancy in Taiwan.
As of last October, only 14 banks in Taiwan offered customers the ability to access account balances, transaction accounts and exchange/interest rates over the Internet, with only four offering sophisticated services such as on-line credit card transfers or inter-account transfers.
A recent report by the government's Market Intelligence Center (MIC) showed that red tape and security concerns were the major obstacles to the growth of the island's promising Internet banking sector. However, the MIC report estimated annual Internet investments by Taiwan's 96 domestic and overseas banks will rise from NT$500 million in 1999 to NT$900 million this year and double to NT$1.8 billion in new investments in 2001.
The Ministry of Finance (
The chief bottlenecks -- security and regulation -- will likely be resolved with the establishment of a certification system and a digital signature law, provided the government scraps the need for another layer of red tape in the form of the Certification Authority Center, the MIC report said.
Internet banking services will become widely adopted when registering is as simple and efficient as buying a new mobile phone number, the report said.
A recently released Boston Consulting Group report on Asian on-line shopping showed that Asian consumers have already spent almost US$3 billion on on-line shopping this year, with on-line shoppers expected to spend another US$400 million during the holiday period.
Industry analysts forecast on-line financial information and services, travel services and ticketing will be major growth areas in on-line services next year, adding to this year's hot on-line commodities -- CDs, magazines, books and computer software. It is expected businesses will mount aggressive discount and loyalty incentive campaigns on the Internet next year to attract upwardly mobile Internet users.
Security concerns
A common perception among customers that Internet banking is insecure remains perhaps the biggest issue in the business-to-consumer e-commerce market. Taiwan's first detected Internet banking related crime occurred last October, when a suspect tricked a customer into sending their bank account details and personal identification number by e-mail. The crime seemingly justified fears of the vulnerability of electronic transactions and has served to heighten concern regarding cybercrime.
Two systems developed to secure transfers of data, including financial transactions, on the Internet have become de-facto global standards -- SSL (Secure Sockets Layer) and SET (Secure Electronic Transaction).
Credit giants Mastercard and Visa International have joined IBM and several other global IT and retail corporations to pioneer the SET technology standard which transfers information safely and securely over the Internet through the intermediary of a payment gateway.
Using the SET standard, the gateway verifies the identity and transaction details of individual customers with the aid of two encryption keys -- a public and a private key. The private key must be installed on a customer's computer to activate the Internet banking services.
John Tzung, vice president of Acer Internet Services, an online services partner of Mastercard, says SET is unpopular among customers because of its lengthy application and verification procedure.
"Most people don't want to go through all the hassle. However, the expected spread of IC cards next year will solve that problem as they can be used to verify the customer's identity instead of an encryption key," he said.
SSL is similar to SET in that the customer must send account details, albeit encrypted, over the Internet, although SSL has no lengthy registration procedure -- it simply requires the user to possess a credit card, prepaid card or similar method of payment.
Current finance ministry regulations require a three-way relationship between consu-mers, banks and a Certification Authority Center. All customers need to apply at their branch to use any Internet services a bank offers. The branch notifies the company's headquarters and the center on a dedicated line, which is more difficult to eavesdrop electronically.
US companies VeryTrust and Entrust SET provide Taiwan's major payment gateways -- Acer Group's HiTrust, GCNet and SeedNet.
HiTrust will shortly announce the launch of its business-to-business e-commerce pilot to add to existing business-to-customer e-commerce services, spokeswoman Cindy Wang said.
"We'll soon be launching a B2B complement to our B2C services on our Cybercity home site. I expect many banks will soon be doing the same in the near future," she said.
Fraud alert
Despite a widespread fear of hightech on-line snooping of credit card numbers, simple fraud is by far the most common form of e-commerce crime. The common problem of non-delivery of goods after payment -- in a recent survey up to 40 percent of users said they had been swindled at least once -- is expected to strengthen brand loyalty among consumers.
This may allow current incumbents to leverage their existing brand profile and force new entrants to build their brands in record time.
A top AcerNet executive said the firm's AcerMall B2C site traded heavily on the reputation of Acer Group's computer manufacturing operations.
"Even though we've got nothing to do with the PC side of the group, the brand name recognition gives us a big advantage, especially when you consider the large number of unknown new companies entering the e-commerce market," he said.
The advance of Internet banking has been accompanied by the rapid development of alternative forms of electronic payment. Visa recently launched a smartcard, which contains an electronic chip capable of storing thousands of characters. The card acts as a store card, credit card, debit card and stored value card rolled into one. It is being used by a number of department stores and customers will soon be able to use it as a telephone card and travel ticket.
The smartcard's debut on Taipei's underground is slated for the eve of the arrival of Microsoft mogul Bill Gates in Taiwan this year. Gates is due to attend an international telecommunications forum in Taipei in June.
The Visa smartcard's stored value function is more readily acceptable to Taiwanese consumers than credit, industry experts say. Its range of features may give it the edge on previous competitors which have only possessed a few of these capabilities, although MasterCard Taiwan Manager, Tian Chiang, says Mastercard's Mondex stored value card pilot, begun in November, has sharpened the company's competitive edge.
"The Mondex pilot is delivering fantastic results. We have never been in a better position as we enter the new millennium," she said.
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