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Editor in Chief, The Taiwan Banker
Hank Huang (黃崇哲)
A Fault Tolerant Culture is Needed to Support Fintech Development 2019.09 The Taiwan Banker NO.117

For a long period, Taiwan’s fintech segment has been held back by over-regulation, insufficient investment, and a lack of talent. The government, hoping to create a friendly environment for a fintech ecosystem, has now has proposed a multi-pronged approach to promote entrepreneurship and strengthen the competitiveness of the financial sector.

Following a lengthy application process, Taiwan's first three virtual banks have finally been approved and are expecting to start offering services next year. They form the last piece of the puzzle for Taiwan’s fintech development. The combination of digital transformation for traditional banks, the regulatory sandbox, and service innovation by the virtual banks will become a framework for fintech innovation. The end point of these three strategies is no less than the complete transformation of Taiwan’s financial services.

Under policy guidance, existing financial institutions have expanded their fintech investment (reducing required R&D expenditures), and also encouraged applications for patents. The growth rate of their investment in fintech has almost doubled over the past two years. Meanwhile, the world’s first Experimental Regulations for Fintech Development and Innovation, formulated for the regulatory sandbox, are an open invitation for the whole world. The regulation sets an experimental period of up to three years, and an upper limit of NT$ 200 million in risk exposure, to encourage pilot operations of financial services not allowed under current regulations. Virtual banks, in contrast (requiring billions of Taiwan dollars in capital), are attempting to create a new customer experience through state-of-the-art information technology and better consumer protection.

Concurrent with these efforts, we must also pay close attention to the possibility of such innovations failing. With reference to international experience, virtual banks who have continued to lose money over multiple years have been acquired, and market exits have also been frequently reported. After all, success is not a given; behind each case are the less-reported failures.

Fault tolerance is essential for financial innovation to be successful. Fault tolerance refers to design such that a single failure will not influence the stability of a system. Similarly, a fault tolerance culture means that the first task after a failure isn’t to point fingers, but rather to learn its lessons, improve, and take the experience as a reference point and even a catalyst for innovation.

Financial system stability and consumer rights are fundamental to the finance industry, but overemphasis on stability could stifle innovation, making it difficult for tomorrow’s stars to emerge. Only by enhancing the fault tolerance culture of regulators, the industry, and consumers, and by tolerating the possibility of failure under the premise of risk preparation, will Taiwan’s financial innovation architecture be able to attract venture capital and create projects with great future prospects.