A fintech wave has swept the world in recent years, and Taiwan’s financial industry has not been immune to this trend. Digital technology has gradually penetrated an increasing number of financial products and services. Everyone may be impressed by certain financial institutions who have dared to introduce new technologies and diligently improve customer experience, but even financial practitioners and high-level participants in financial markets may not understand the overall status of Taiwan’s banking industry in digital transformation and fintech innovation.

In order to answer to this question, TABF launched Taiwan’s first Fintech Innovation and Digital Transformation Survey.

Multi-faceted, innovative research methodology

The data come from two questionnaires. The first was given to banks, and included the resources invested in fintech innovation, digital transformation process and results, and the focus of future development. The second was given to financial practitioners (mostly front-line employees) and consumers, and mainly included the respondents’ personal evaluation or experiences of banking transformation.

In addition, a number of senior Taiwanese experts and scholars in related industries were invited to review the digital performance of Taiwanese banks. We asked them to comprehensively score their digital transformation and fintech innovation in recent years.

Based on the results, we compiled further statistics on the resources invested by each bank in digital transformation and fintech innovation in order to evaluate their transformation and innovation. The investments include the total funds and human resources invested in digital finance over the past two years. The performance evaluation included self-evaluation by bankers, mutual evaluation by peers, evaluation by consumers and financial practitioners, and expert evaluation. We then divided the 30 banks that filled in valid questionnaires into four clusters based on their inputs and outputs.

Four clusters of digital transformation

In the Leading cluster, seven banks have invested more resources and achieved good results. Nine more have also invested considerable resources, which shows that their mentality and actions are quite proactive, but they have not demonstrated results as impressive as those of the Leading banks. We call them Proactive banks. There is also a smaller cluster of banks who have not investment as many resources as those two clusters, but their performance is similar to that of active banks. We call these Potential banks.

Finally, nine banks invested less and have achieved less, which we call the Conservative banks. The main purpose of clustering is to facilitate research and analysis for in-depth exploration of the reasons for the differences. Each cluster is at a different stage of digital transformation, and will face different strategic planning challenges. The development path of the Leading banks should have some reference value for the others.

Nearly 90% of banks have introduced AI, big data and RPA applications

The survey found that 90% of Taiwanese banks have initiated digital transformation, and most have already started their digital transformation process. Regarding emerging digital technologies, it found that nearly 90% of banks – including even some conservative ones – have introduced AI, big data and RPA applications. Current applications of such technologies focus on intelligent customer service, loan scoring models, and product and service recommendations.

The survey also showed that close to 80% of banks use blockchain applications, often to certify letters of credit. If confirmation blockchains are not included, only about 50% use blockchain, mainly for supply chain finance and enterprise financial data exchange. Less than 30% have introduced augmented reality (AR) or virtual reality (VR), which are closely related to the concept of metaverse.

Cooperation between banks and tech companies

Banks need technology, and fintech companies need capital. According to the results of the Taiwan Financial Services Roundtable’s 2022 Fintech Investment and Applications in the Financial Industry survey, total investment by the Taiwanese financial industry in fintech increased significantly to NT$ 31.215 billion. The number of fintech companies with cooperative relations also increased from 2021. According to our survey results, the top three fields of cooperation are payments, cybersecurity, and AI/big data.

Looking at the number of fields of cooperation, we find that the Proactive banks cooperate with fintech companies in an average of nine fields, compared with seven fields for the Leading banks.

The key technologies for the next three years will be AI and big data

The survey showed that according to 80% of bankers, the key technologies that will have the greatest impact over the next three years are AI and big data. Other technologies that have attracted much attention include real-time automatic data analysis, integration of front-end and back-end systems, cloud and edge computing, cybersecurity, core banking system updates, and biometric identification.

The Leading banks particularly emphasize cloud and edge computing. The financial cloud can allow banks to establish new profit models through more open financial services, while saving on internal management resources. As domestic regulatory agencies attach more importance to the protection of personal information, laws and regulations are becoming stricter. There are still many uncertainties in the future of open cloud migration, but banks can evaluate possible strategies in advance and make preparations accordingly.

Talent demand: high-level strategic and cross-silo fintech experts

People are one of the keys to digital transformation. The rise of fintech has also changed the recruitment targets of the banking industry. The outside world may still pigeonhole fintech experts as data analysts and scientists and AI engineers, etc., but the broader functions required for related positions are not limited to data analysis or programming, but also include digital marketing, UI design, UX analysis, and consumer psychology analysis. Demand for talent in the banking industry has gradually undergone structural changes.

The survey found that 87% of bankers said that they currently most lack “digital transformation strategy planning” talent, followed by “fintech cross-silo talent, accounting for 77%. More than 50% said that financial talent is in short supply, including big data analysis, mobile service UI/UX, software design and development, and agile project management. These four skills are relatively easy to obtain through training programs.

Digital transformation improves user experience and customer satisfaction

This survey found that bankers agree that digital transformation has indeed brought significant results, especially in terms of “customer experience and satisfaction.” This result is also reflected in the reduction of daily operation and operation management costs, improvement of market competitiveness, brand image and customer loyalty, improvement of employee work efficiency, and optimization of the employee experience.

The survey collected feedback and suggestions from banks, financial practitioners, consumers, industry experts, and scholars, aiming to present as complete as possible a picture of banks’ fintech innovation and digital transformation. However, some questions may be difficult to define clearly. For example, different banks have different definitions and standards for resource investment and achievement. This questionnaire was sent to banks, but some may invest in fintech in part or in full through their financial holding companies, so their answers may not be accurate.

Furthermore, regarding application of technological solutions, whether banks spend money to purchase ready-made products off the shelf, or develop them with its own team, or jointly create them using different vendors, have different meanings. It is difficult for a questionnaire alone to reflect these nuances. In addition, there are different opinions on the definition of digital transformation itself, and there is still no generally accepted objective standard to measure its effectiveness.

Only by understanding their own strengths and weaknesses, and by driving digital transformation from top to bottom, will banks earn the opportunity to capitalize on the business opportunities of the fintech era.