The Taiwan Banker
Observing the Global Financial Center Index (GFCI) September 2017 survey results, the top five financial centers in the world are London, New York, Hong Kong, Singapore, and Tokyo. Taipei ranks 27th, 11th in the Asia-Pacific, not only once place lower than in the previous survey, but its score of 677 points is also 12 points lower than before. Such results contrast with overall net profit after the financial control tax creating new highs, but carefully studying the implications, if the Taiwanese financial industry does not accelerate its transformation, the whole industry may lose momentum for sustainable growth.
Low spreads have become the keynote of Taiwan’s financial industry environment in recent years, but profits have still grown in such an environment, highlighting the strength of Taiwan’s financial industry. Points including continuous improvement in bad debts and BIS ratios further show the soundness of its financial institutions. Declines in GFCI scores on Taipei infrastructure investment and human capital however point out pain points for the whole industry: a serious shortage of IT equipment and human capital investment. Taiwan’s financial industry is not properly prepared for the trends of FinTech development, and the global economic center moving East. If adjustments are not made immediately, it will cast a shadow over the next stage of development.
In fact, reviewing the experience of other successful financial centers, there is always a clear development orientation – whether it’s Singapore’s “Financial Services Industry Transformation Blueprint,” America’s “FinTech Framework White Paper,” or Hong Kong’s “The Future of FinTech in Hong Kong” – to coordinate industrial investment and government policies. In Taiwan, a “FinTech Development Strategy White Paper” was issued last year, explaining “expected targets” for financial institutions in terms of applications, management, resources, and foundations. The fact remains though that financial institutions’ investment in IT equipment has not improved. Most financial institutions in the FinTech ecosystem, aside from some research institutes and financial leaders, are still exploring or evaluating countermeasures, or even standing completely still, waiting for a clearer market profile to emerge.
In this regard, under the supervision of Vice Premier Shih Jun-ji, the government passed a one hundred trillion NT$ “Financial Development Action Plan,” hoping to implement cooperation between finance and industry, integrated S&T innovation, international market penetration, and financial service universalization. In particular, in addition to the traditional banking, securities and futures, and insurance categories, the plan added “FinTech,” for a total of 15 governance policies as specific review and audit objects.
In contrast to the industrial plans being found everywhere, success stories are few, and whether the Action Plan can reach its policy goals, and not just get filed away, remains a test of the determination of policy makers and the industry. Because Taiwan’s financial environment has already become a “do or die” situation, with low spreads, FinTech competition, and more international competition, existing business models will struggle to maintain profits. More worryingly, “Taiwan preference” policies from the other side of the Strait are luring away young professionals with subsidies, exacerbating competitive pressure on Taiwan.
The biggest challenge for both consolidation and internet-only banking will come from democratic populism. Losers in the future process of profit redistribution will certainly use their free speech rights to make accusations, but this is precisely the value of Taiwan’s democratic process. The countermeasures for this are the transparency and selflessness of policy makers, and the people’s determination for good governance. Of course, clear policy marketing is also a necessary tool. Only in this way can governance return to its initial purpose, which is inclusive finance.
Is this “turning point” for Taiwan’s financial sector the transition to a prosperous developed economy, or to a small, fortunate, independent vacation country? We await finding out whether this Action Plan gets implemented.