The Taiwan Banker

For the first 16 months of the coronavirus pandemic, life went on largely as usual in Taiwan. In retrospect, this experience has been a double-edged sword. Taiwan rightfully won accolades for its deft handling of the pandemic, which saved lives and helped the economy to thrive. However, some important changes necessary for life in the Covid era were put off. Nowhere has this been more apparent than in the financial sector, which is now behind the curve adapting to a world where infectious disease is a constant worry. Taiwan’s banks are known for their rudimentary IT systems and reliance on physical branches. Before the pandemic, this traditional banking culture had its drawbacks, but there was no catalyst for immediate change. Most Taiwanese accepted the need to regularly visit bank branches during the limited business hours of 9am-3:30pm. Yet with the virus in the community, people have become more reluctant to have contact with others. While some of that concern may ease with higher rates of vaccination and a sustained period of low community transmission, the benefits of increased digitization are clear. It is necessary to ensure public health and the future competitiveness of Taiwan’s financial institutions. Retro banking As an example, I will share my experience in June changing my online banking password at one of Taiwan’s medium-sized lenders, where I have been a customer since 2004. This bank’s online banking portal looks it was designed in the early 2000s, with functionality from that era. It is only possible to change one’s online banking password from home with the Microsoft Internet Explorer browser. That browser has not been in wide use for years among the general public and will be retired by Microsoft in 2022. When I arrived at my bank’s branch in Taipei’s Xinyi District, the clerk assisting me immediately asked me to sign several documents – four pages in total. Next he printed out another two-page document that confirmed I had changed my password. He then led me to a computer that remarkably had an old version of Internet Explorer on it and asked me to key in my new user ID and password information. Although I was wearing an N95 mask and he was wearing a mask and face shield, he hesitated to come near me. With several meters of distance between us and his mask muffling his words, I could barely hear what he was saying. To be sure, I successfully changed my password and the bank’s staff members were courteous as always. But it was not a good use of either of our time. What could have been accomplished at home – and without any paper – in less than five minutes took much longer; including my journey to and from home, nearly an hour. Boosting competitiveness Taiwanese banks should take the opportunity provided to them by the pandemic to more fully digitize the customer experience. Those without the capabilities to make this change independent can consider working together with fintechs. If incumbent lenders fail to take these steps, their competitiveness will decline. In the domestic market, they now face three virtual banks – Rakuten Bank, Line Bank and Next Bank – which have an edge when it comes to the digital customer experience. Similarly, Southeast Asia, the main international market for Taiwanese lenders, is rapidly digitizing. Taiwanese banks will struggle to build meaningful market share in countries like Indonesia, the Philippines, Vietnam, Thailand and Cambodia if they do not adapt to the new normal. The experience of several Singaporean banks could be instructive. For instance, in the spring of 2020, Overseas Chinese Bank Corporation (OCBC) moved its wealth advisory services online, including the sale of unit trusts, structured investments, bonds, and foreign exchange products. About 1,000 advisors began conducting meetings and sales advisory remotely. While face-to-face interactions are still the choice of some customers, the success of virtual wealth management means that it is here to stay. "In the future, customers will have a choice at their convenience to decide the best mode of engagement for their financial needs," Sunny Quek, OCBC head of consumer financial services, said in a statement. DBS is also accelerating digitization. “Covid has allowed us to do another two years’ worth of digitization in a short time,” the company’s CEO Piyush Gupta told the consultancy McKinsey in a September 2020 interview. Going cashless In addition to banks themselves, many Taiwanese merchants and their customers would benefit from increased digitization. In this area, Taiwan has made rapid progress in recent years, laying a solid foundation for a (mostly) cashless economy. Mobile payments in Taiwan grew by more than 200% annually in 2020 to NT$240.7 billion (US$8.54 billion), according to data compiled by the Financial Supervisory Commission (FSC). Last year, payments made through e-payment platforms (such as Line Pay and Jkopay) jumped 135% to NT$85.4 billion, making them the most popular type of mobile payments. The reasons for the popularity of these digital wallets are not hard to figure out: They are convenient, often subsidize customer purchases with cashback and other rewards and sometimes offer merchants incentives to begin accepting them as well. E-payments are especially popular with adolescents, who are not allowed to have credit cards but can link a bank account to Line Pay, Jkopay or a different platform. When I recently visited my local photo lab in Taipei to print some photos, I noticed that for the first time the shop offered a cashless payment option: Line Pay. The manager told me that customers found it convenient and safer than having to handle cash. With business down during the local Covid outbreak, she had impetus to make the change. Market forces will surely convince many other small businesses to offer cashless payments to their customers. However, the market alone will not suffice to convince some traditionally-minded merchants who prefer cash to make the change. Vendors at traditional markets come to mind. For instance, prior to the local Covid outbreak, I did not find a single fruit or vegetable vendor at the Wuxing Street Shopping District who accepted non-cash payments. Many of them are sensitive to merchant fees or not trusting of cashless payments. With that in mind, the Taiwanese government should consider offering subsidies to merchants at traditional markets, taxi drivers and others who have heavy contact with the public to support their transition to cashless payments. Cash itself is not an ideal vector for the virus, but because use of it involves lots of touching, it inevitably is riskier than contactless payments. Scientists at the Australian Centre for Disease Preparedness have found that SARS-CoV-2 can survive on bank notes for an extended period of time. “The persistence of virus on both paper and polymer currency is of particular significance, considering the frequency of circulation and the potential for transfer of viable virus both between individuals and geographic locations,” they wrote in a study published in October 2020 by Virology Journal. The scientists found that the virus “persists on both paper notes and polymer notes” for at least 28 days at 20 °C, “albeit with a faster rate of inactivation on polymer note.” Cash also expensive to maintain. Yasushi Sasaki, Managing Director & Senior Partner Tokyo at Boston Consulting Group, estimated in 2018 that the Japanese financial industry loses as much as 2 trillion yen a year just to maintain cash services. That total includes personnel and cash-transfer costs. With that in mind, Taiwan should seize the current opportunity created by the pandemic to speed up its cashless transition. Reducing the use of cash will stymie the virus’s ability to spread and may even help save the financial industry a bundle.