On-line Banking Takes Off in Taiwan

Thanks to the sharp increase in on-line subscribers, the popularity of broadband networks, and encouragement of the government, on-line banking has become a hot channel for financial dealings in Taiwan.

With the emergence of the Internet and the government' s active promotion of e-commerce, local banks began to promote on-line banking operations in 1999.

However, after they began promoting on-line banking operations, local banks initially confronted three major difficulties, including slow access speed, disruption of on-line connections, and poor website content. However, as Internet technology has developed, most of the problems have been removed, and website content has greatly improved. In addition to providing basic corporate information and simple trading tools, on-line banking now also offers a variety of sophisticated services, including information on domestic and foreign investment trust funds, the stock market, and the forex market; on-line application for credit cards and small unsecured loans; on-line trading in securities and funds; and forex transfers.

Another major concern about the rise of Internet banking was the fear of a "passive boycott" by banking employees, especially the veteran ones, who could have become worried about their job security. However, in the wake of banking mergers and the early retirement of banking officials, such a boycott never arose.

In order to expand on-line trading, some banks have installed electronic financing departments, including Taiwan Cooperative Bank and the Bank of Taiwan. Other banks have established a special task force to do "e-financing, " such as the International Commercial Bank of China. In addition to solving problems, these specialized units have helped banks to promote their on-line loan businesses as well as to carry out B2B money flow services.

Costs Down for Users and Banks

The on-line banking network provides the services of global payment and debt collection, inter-bank account integration, and on-line loans. The network is capable of offering local enterprises timely, strong, and flexible financial support.

Some on-line banking systems provide dedicated financial services to central manufacturing plants and their satellite suppliers, including payment, debt collection, debt offsetting, and financing, greatly enhancing the efficiency of the supply chain and creating benefits for central plants, satellite suppliers, and banks.

With the Internet penetration rate reaching 45%, on-line subscribers exceeding 9 million, and banking staffers experiencing a sharp reduction, the promotion of on-line banking is critical for the business development of local banks in the future.

The most common on-line banking business appears to be on-line ATMs (automated teller machines), which offer various kinds of banking services, including money transfers, inquiries about account balances, tax payments, payment of utility fees, payment of credit-card debts, payment of fines for violations of transportation regulations, payment of road-side parking fees, and payment of tuition. The ceiling for on-line money transfer is NT$100, 000 per day, more than triple the NT$30, 000 ceiling at physical ATMs, making the on-line transfers very convenient.

For domestic banks, on-line ATMs offer convenient, low-cost services. In addition to the government' s restriction on the number of branches, the establishment of a new bank branch entails huge costs. For installation of physical ATMs at public venues, such as hypermarkets, hospitals, and convenience stores, banks also have to bear various costs, including site rental, equipment maintenance, and cash loading. But to initiate on-line AMT service, a bank merely needs to add a function to its existing website. With the more than nine million Internet subscribers in Taiwan and more than 73 million financial cards in circulation, the number of potential clients for on-line banking services is tremendous.

Up to now, 24 financial institutions have opened on-line ATM businesses, including the Bank of Taiwan, the Land Bank of Taiwan, Taiwan Cooperative Bank, First Commercial Bank, Hua Nan Bank, and Chang Hwa Bank. The number of daily transactions via on-line ATMs currently tops 300, 000.

The emergence of on-line ATMs will inevitably affect the presence of physical ATMs, since the former has stronger functions than the latter, except for the retrieval of cash. Insiders believe that with the growing replacement of cash by "plastic" currency, physical ATMs will gradually be phased out.

However, two of Taiwan' s major financial institutions have yet to jump on the on-line ATM bandwagon-Chinatrust Commercial Bank and the Post Office.

Chinatrust now owns 3, 500 physical ATMs island-wide, and the Post Office has 3, 100 physical ATMs, which together account for 28% of the island' s 23, 800 total physical ATMs. They, therefore, are not in a rush to replace their physical ATMs with on-line ATMs. However, the Post Office and Chinatrust have 11.6 million and 3.7 million financial cards in circulation, respectively. Based on the assumption that every cardholder conducts four cross-bank money transfers per year, cardholder processing fees could top NT$1.04 billion. The cardholders would stand to benefit greatly from becoming the clients of on-line ATMs.

To utilize an on-line ATM, a client must possess a computer capable of accessing the Internet, a financial card with a memory chip, and a card reader. The major problem impeding the popularity of on-line ATMs is the shortage of card readers, which most clients are unwilling to pay for. Meanwhile, since giving away a large number of card readers would be very expensive, many banks are unwilling to provide the readers to clients free of charge. Some banks, therefore, offer their clients free card readers on the condition they conduct money transfers via their physical ATMs 10 times during a certain period.

In the future, after a card reader has become a standard accessory for computers, the on-line ATM business will grow by leaps and bounds.