articles Ratings /ratings/en/research/articles/190801-the-future-of-banking-virtual-and-vital-online-only-banks-aim-to-transform-taiwan-banking-10999490 content
Log in to other products

Login to Market Intelligence Platform


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List

The Future Of Banking: Virtual And Vital--Online-Only Banks Aim To Transform Taiwan Banking


U.K. Banks’ Creditworthiness Will Be Tested As Fiscal Support Ebbs


Industry Report Card: For Large U.S. Banks, Substantial Credit Provisions Weighed On Earnings


What Lies Ahead For U.S. Bank Provisions For Loan Losses


ESMA’s Stress Test Gives Clearinghouses Food For Thought

The Future Of Banking: Virtual And Vital--Online-Only Banks Aim To Transform Taiwan Banking

(Editor's Note: Editor's Note: Taiwan Ratings Corp., a subsidiary of S&P Global Ratings, issues rating symbols accompanied by a "tw" prefix to denote Taiwan and the rating scale's focus on Taiwanese financial markets.)

Taiwan's banking sector looks set for a jolt of innovation as virtual banks gain entry to the very competitive yet highly uniform industry. The Financial Supervisory Commission (FSC), which regulates the banking industry, has announced the three successful applicants in the first round of digital license offerings in Taiwan. We expect the entrance of virtual banks to bring modern financial services to niche markets, altering how customers use financial services and helping shape the future of Taiwan banking.

However, while virtual banks are likely to act as a catalyst for innovation and change, we do not foresee a significant impact on the industry's structural dynamics, given the size of digital entrants. Virtual banks each aim to tap into a slightly different customer base via their existing technology platforms or ecosystem by merging their online services seamlessly into customers' daily banking activities. These include well-established and often widely used e-commerce and communications applications that could be integrated into a wider digital banking platform. However, we believe the high initial set-up costs and lack of scale economies could constrain profitability for virtual banks in their early operating stage.

Deregulation Opens The Door To New Digital Offerings

The decision by Taiwan's financial regulator to approve operating licenses for virtual banks opens the door to innovative new means of conducting everyday financial transactions and could see the first virtual banks launch banking services by the end of 2020. In our view, the competitive advantage of virtual banks rests in their ability to leverage their large established ecosystems in non-financial industries to draw clients to their banking platforms. They aim to improve accessibility to financial services to underserved portions of society--small scale businesses as well as the younger generation that have yet to build a credit history. In addition, virtual banks have the advantage of cost efficiency and greater technical agility over their pure brick and mortar counterparts.

Applicants' backgrounds involve partnerships between existing banks and technology and communications firms that possess mature digital platforms such as social networking apps, mobile telecommunications, and e-commerce platforms.

We believe the regulator and consumers alike eagerly anticipate the benefits that financial technology (fintech) could bring the industry. The growth of purely virtual banking platforms could indeed be a stimulus for change, given the industry's somewhat uniform service offerings and structurally fragmented nature in Taiwan.

However, it might be hard for newcomers to build a strong franchise and turn a profit in the short term due to the competiveness of this market and the extreme price-sensitivity of banking services. 37 domestic banks serve a population of just 21 million in Taiwan, with the biggest three banks holding a combined share of less than one-quarter of all deposits. Moreover, state-owned domestic banks remain dominant in the local market and control about half of all loans and deposits despite recent aggressive growth by private banks.

Deregulation paving the way for fintech development in Taiwan has lagged behind that in regional banking markets and led to a slow adoption of fintech among Taiwan banks. This means that such new technologies have yet to make much difference, certainly in comparison to Taiwan's neighboring markets where vibrant fintech ecosystems exist.

Indeed, research by the non-profit Taiwan Network Information Center, shows there is a lot of opportunity for fintech to grow in Taiwan, given the penetration rate for online banking (the percentage of the sample population using online banking services) stood at just 35.6% in 2018, which is almost unchanged from that in 2017. Moreover, the most frequently used online financial services were simple in nature and involve mostly routine transactions such as fund transfers (73.4%) and account balance checks (48.9%) in 2018.

Who Are The First Virtual Banking Entrants?

Three virtual banks have been awarded franchise licenses, including Next Bank, Line Bank, and Rakuten International Commercial Bank (Rakuten Bank). Their business focus differ slightly in each case; Next Bank may go for small-scale lending and money management, Line Bank for online payment, and Rakuten Bank for e-commerce. Their shareholder structures also differ somewhat, including not only state-owned and private banks, a leading telecom operator, and the largest supermarket chain in Taiwan.


Given their makeup and backgrounds, we expect the virtual entrants will integrate financial services into their large existing technology platforms by leveraging their shareholders' resources. Some applicants have an experience in e-commerce and banking in other markets, which they could leverage as they enter Taiwan's competitive market. Meanwhile, other applicants have well-established social applications that give them means to penetrate the retail mass market in Taiwan.

Robust Digital Ecosystems Could Revolutionize Banking

In our view, virtual banks with access to a wide customer base through their digital platforms could access retail customers through interaction points that are not available to traditional banks. These include online social networking applications and e-commerce systems. In addition, virtual players with widely adopted, user-friendly technology platforms could embed banking services in customers' daily routines with greater ease than their traditional bank counterparts.


In recent years, virtual banks have launched across Asia-Pacific with several achieving strong growth. Virtual banks can utilize their abilities and efficiencies to target niche markets that are historically underserved or considered as 'un-bankable'. This includes younger customers without an established credit record or stable repayment ability according to banks' standard underwriting criteria.

However, we expect it will take some time for new virtual banks to breakeven despite the apparent cost advantage to virtual banks from lower expenditure on human resources and infrastructure in the absence of a physical branch network.

Start-up costs and an initial lack of scale will likely constrain profitability for virtual banks in the beginning. Virtual banks are subject to the same costs for regulatory compliance and risk management as ordinary commercial banks, which initially will be offset by a much smaller scale of operations. The regulator and central bank will also conduct close overview of virtual banks in their initial growth stage to ensure they meet the requirements for risk management and meeting these stringent requirements are sure to add to virtual banks' set-up costs.

Virtual banks are also likely to face higher funding costs because they will need to build their deposit base from scratch by attracting clients with competitive deposit rates and transaction fees. These costs are likely to weigh on virtual banks' profitability in the first few years of operation, depending on how fast they can build scale.

Investment In Fintech Is Essential But Costly

We expect Taiwan's physical banks to invest to keep pace with digital developments. We estimate banks will invest several hundred million New Taiwan dollars in fintech over the next two to three years, but the actual amount will vary greatly among banks. However, while digital transformation requires sizable investment, the financial returns aren't always obvious in the short term.

In our view, bigger and better-performing banks will likely find it easier to absorb the investment costs of developing this technology. Smaller players without stronger group support are unlikely to fare so well. Some Taiwan-based banks use strategic partnerships and alliances with fintech firms to supplement the bank's technical capability. Large players in the domestic banking sector as well as mid-size banks have also acquired stakes in one of the current franchise applicants to spread out their bets.

Many banks in Taiwan now offer some form of digital platform for core banking products. Most have focused their fintech-related investment on blockchain, automated-advisory services, and e-payments.

Fintech Growth Could Influence Banks' Strategic Direction

Several factors are likely to disrupt market dynamics over the next two to three years as a result of fintech's growing presence in Taiwan's banking sector. Chief among these is the growing threat of cyber security. In addition, changing expectations and behaviors as clients move from physical to digital interaction will complicate banks' relationship model.

However, incumbent banks are less likely to be worried about price competition, given that the Taiwan banking market is already saturated and highly price sensitive. We don't expect the introduction of virtual banks to alter the competitive landscape significantly over the next few years, because it will take time for the newcomers to build market share.

But the long-term impact could be more profound: new technologies may bring increasing turbulence and disruption to the relatively saturated banking industry. We are encouraged by this development. By bringing innovative digital offerings, we believe banks will tie customers more tightly to their platforms, especially the younger and more technically savvy clients. In any case, customers' increasing demand for product transparency and services innovation will pressure banks to compete or lose out.

This report does not constitute a rating action.

Related Research

  • The Future Of Banking: Virtual Banks Chase The Dream In Asia Pacific, July 17, 2019
  • Hong Kong's First Virtual Bank Licenses Will Rejuvenate The Banking Sector, March 29, 2019
  • The Future Of Banking: Singapore Banks Must Adapt To Fintech Or Lose Out, Feb. 20, 2019
  • Five Fintech Expectations For Business And Consumer Payments And The Ratings Implications On Banks And Nonbank Financial Institutions, Feb. 13, 2019
  • The Future Of Banking: Could Fintech Transform Banking In Taiwan?, June 11, 2018
  • The Future Of Banking: How Fintech Could Disrupt Bank Ratings, Dec. 15, 2015
Primary Credit Analyst:YuHan Lan, Taipei (8862) 8722-5810;
Secondary Contacts:Eunice Fan, Taipei (8862) 8722-5818;
Andy Chang, CFA, FRM, Taipei (8862) 8722-5815;

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to:

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back