The Taiwan Banker

Financial institutions have been sprinting this year to provide fast, convenient, and secure online financial bidding services. KGI Bank and Chunghwa Telecom have joined forces with mobile ID verification, allowing young people to create highly secure financial accounts without requiring a bank. As non-financial players start to enter traditional banking, banks have started accelerating the pace of their digital transformation in order to maintain their competitiveness. Last year, the Financial Supervisory Commission (FSC) started preparing for the opening of the “regulatory sandbox.” Last month, KGI Bank and Chunghwa Telecom joined forces for mobile ID verification, becoming the first project to be approved by the FSC. The digital innovations in the Sandbox will mark the beginning of a new era. Disrupting certification through accountsThe Regulatory Sandbox experiment was officially launched in December. It will help banks absorb more customers and promote “inclusive finance,” and is also meaningful for the process of financial digitalization. Zhou Guo-Jie, Senior Vice President of China Development Financial and KGI Innovative Financing Department, also responsible for the mobile ID verification project at KGI, said that the project has put to rest the notion that only passbooks, credit cards, and natural person identity cards can serve as identification. Direct verification through a mobile phone is mutually beneficial for banks and customers, accelerating inclusive digital finance.This technology helps addresses the pain point that many young people lack access to financial accounts, and therefore to payments. For banks, it breaks through the traditional limitation of certification through accounts. This method may be even safer than traditional methods. Zhou specifically mentioned improvements on the technical level, including security. In contrast to credit cards, which run on plaintext code, this method securely stores verification information in a secure encrypted system, which would notify a user using specified authentication methods if a stolen phone were used to apply for financial services. Credit cards are often stolen without immediate detection, but the theft of a phone would be immediately noticed.Meeting the requirements of the “scrolling generation” Another important implication of the regulatory sandbox for digital finance is improving the connection between finance and phones. Now mobile payments no longer require a bank account and can serve a much wider segment of society than previously (only the existing customers of banks). This technology both verifies identity and speedily assesses credit risk. The new interface will allow banks to more securely reach and issue credit to new customers who have not previously held bank accounts. This “mobile phone certificate,” a collaboration between a telecom provider and bank, turns the mobile number into a digital passport to financial services. Zhou believes that this approach is more in line with the requirements of the “scrolling generation.” Allowing customers to directly access digital finance through their phones will be important for Taiwanese banks in their transformation into true “mobile banks.”Looking back over 20 years of digital finance development, Zhou emphasized that even in the era of smart mobile phones, many banks call themselves mobile banks, but mid-size banks’ mobile consumer digital finance offerings are still similar to traditional websites. Truly mobile banks in other countries are different. Instead of traditional login processes, ported directly from desktop versions, they use a variety of customized authentication methods to allow consumers to access finance services.Meanwhile, Zhou noted that banks should target young consumers, who will not be resistant to mobile banking technology. In 10 or 15 years, these 20 year-olds will become 30 and 35, and important users of financial services like loans. The quality of mobile banking service will be integral to the sustainability of banks' business in the future. First movers will have key advantages. A cross-industry financing allianceBlockchain is one of the most important contemporary developments in digital finance. Fubon Group, with strengths in multiple industries from finance to traditional manufacturing and telecommunications, has cooperated with the e-commerce platform Momo (through its subsidiary, Taipei Fubon Bank) on supply chain payments. The project makes it a leader in a new kind of digital finance.For banks, the development of such cross-industry alliances to serve online supply chain financing will fix the problems that banks used to frequently face in obtaining information from creditors, particularly small and medium-sized enterprises (SMEs) or micro-enterprises. In this case, the Momo platform, with trading information on large daily monetary and goods throughput, is directly integrated with the bank, allowing the bank to better understand borrowers’ financial status. Banks thereby obtain access to greater quantities of and more timely information on supplier orders and production and are able to make clearer judgements on financing amounts and timing. This system also makes things more convenient for customers – particularly companies who already have the basic treasury resources to borrow, but who do not meet requirements such as credit insurance, or lack collateral like real estate. Information collection through this blockchain platform allows banks to reduce risk, increasing their willingness to provide more financing opportunities to SMEs, whose owners are also the target of this supply chain financing. One could say that “inclusive finance” is also reflected to a certain extent in corporate finance.This additional data allows banks to break through the limitations of rigid traditional client judgement methods. For example, different financing amounts and probabilities can be measured through information on clients’ ‘on’ and ‘off’ seasons. Once the bank and these SME owners have been in the supply chain for a certain time, or if they grow a bit, banks can provide increasingly diverse financial services, including comprehensive cash flow management, foreign exchange, current deposit, wealth management, and payment services. This is another important way for banks to increase their competitiveness.Digital transformation can also include diverse online lending trials for various loan or wealth management services: In addition to non-state banks like CTBC or E. Sun, some state-owned banks have used AI to make decisions, and even to replace manual calculations previously done by tellers. First Commercial Bank now provides trial “Quick E-loan” (第e數速貸) and “Micro-enterprise E-loan” (微企e時貸) websites to calculate real estate guarantees and loans to SMEs.Opening up new channels A number of banks have also worked to develop online community channels to build a next-generation consumer base. The majority of banks (including public ones) now have at least one community management pipeline. These banks include First Commercial Bank, Land Bank, Mega International, Hua Nan Bank, and Taiwan Cooperative Bank. A First Commercial Bank executive said that the bank is active on Facebook, YouTube, Instagram, WeChat, and LINE, creating more channels for customer communication. In Mid-February, it created an official LINE account, which now has 2.63 million followers, ranking 5th among Taiwanese banks. Its official Facebook “Health First” (第e好康) account has 650,000 followers, ranking first among Taiwanese banks. O-Bank, which transformed itself from an industrial to a commercial bank in 2017, is the most remarkable example of banks jumping headfirst into the world of digital finance. This year, the esteemed Asian Banker magazine selected it as the “Best Digital Bank in Taiwan” for 2018 – the only winner of that award. Its investments in digital finance include online account opening and lending, robo-advisory services for wealth management, 24-hour video customer service, cloud systems, and big data analysis – fully covering most aspects of digital finance transformation. Recently, a mobile number transfer function has been added, adding value to the bank’s app.Digital transformation is a necessary and sustainable course for banks. In particular, the use of digitization to integrate finance into individual customers’ lives, and improving the previous bias in corporate finance towards real state as collateral, will not only determine the success of inclusive finance in Taiwan, but will also become the key to banks’ future competitiveness.