Success as a digital bank in Taiwan would deliver the Japanese messaging app nearer to tremendous app standing
In Taiwan, Japanese messaging app LINE is finest identified for its cartoonish stickers of furry creatures. LINE’s emojis telegraph the kawaii (actually “cute” in Japanese) tradition of Japan many Taiwanese adore. As soon as hooked on the free stickers, customers begin paying to construct a much bigger assortment. They could additionally use the LINE app to buy or watch tv.
LINE will not be stopping there, although. It desires to deliver digital banking to its 187 million customers, 21 million of whom are in Taiwan. “Fintech is among the best means of monetization for platform companies,” says Zennon Kapron, director of Singapore-based Kapronasia, a analysis agency. “Going beyond payments into wider retail banking would allow LINE to generate much more value from its user base.”
Taiwan is integral to LINE’s fintech aspirations. The island nation is rich, has excessive web connectivity and smartphone penetration, and its customers are desperate to attempt extra LINE providers. About 91% of the inhabitants makes use of LINE, and its digital pockets LINE Pay is the market chief in cellular funds with a 27.3% market share, based on the semi-governmental Market Intelligence & Consulting Institute (MIC).
Having been accepted for one among three digital-banking licenses from the Monetary Supervisory Fee (FSC) final yr, LINE is planning to launch LINE Bank within the second quarter, with its fintech arm, LINE Monetary, holding a 49.9% stake. LINE Bank will compete in opposition to Chunghwa Telecom-backed Subsequent Bank and Rakuten Bank, backed by the Japanese e-commerce large.
If LINE Bank is profitable, will probably be a watershed second for Taiwan’s monetary sector. The trade has been on-line for many years, and virtually all retail banks provide cellular apps to their clients. But no know-how firm has gained a considerable footprint within the Taiwanese monetary sector.
There’s a catch: the FSC requires digital banks to work with present monetary providers suppliers. “It’s a joint-venture model,” says Ryan Terribilini, founding father of Taipei-based Formosa Monetary, a digital asset administration firm. “The regulators want to give incumbents a chance to experiment with a more innovative banking model.”
The FSC’s strategy to digital banking is “somewhat open-minded” in that the construction of the three digital banks’ shareholding is “pretty diverse,” says Jessica Liu, a associate at Taipei-based AppWorks, one among Asia’s largest accelerators.
LINE Bank’s foremost companions embody 4 monetary establishments and two telecoms. Taipei Fubon Bank holds a 25.1% stake, whereas CTBC Bank, Union Bank of Taiwan, Commonplace Chartered Bank, Taiwan Cell, and Far EasTone every have 5%.
“Leveraging services provided by these six partners, LINE Bank aims to develop a common portal while the company can leverage its partners’ expertise in risk control, financial product designs, legal compliance, and money-laundering control,” says Alex Chu, an MIC trade analyst.
LINE Bank will begin from a robust place due to the prevalence of LINE Pay with its 6 million customers and 120,000 service provider companions, together with main Taiwanese e-commerce platforms like PChome, Shopee, and Yahoo. LINE Pay has been profitable with Taiwanese customers largely due to its bank cards, co-branded with native banks, that provide beneficiant cash-back incentives. Bank cards are by far the most well-liked cashless fee choice in Taiwan.
LINE will goal Taiwan’s retail banking market. The concept is to offer customers within the LINE ecosystem with a big selection of standard monetary providers similar to deposits, loans, funds, and insurance coverage, in addition to some revolutionary providers similar to bill-splitting and tourism recommendation.
This technique mirrors that of the Chinese language tremendous app WeChat (owned by Shenzhen-based Tencent Holdings), however with out lending providers for small- and-medium-sized enterprises. WeChat launched its fintech enterprise in 2013 with a fundamental digital pockets earlier than rolling out a a lot bigger suite of providers.
WeChat’s digital bank, WeBank, based in late 2014, gives wealth administration and financing providers by way of completely different digital platforms. It presently has a valuation of US$21 billion, making it one of many world’s most beneficial fintech unicorns.
As soon as WeChat grew to become a digital bank, its customers had rather more cause to spend time within the app. The timing was proper, too. As WeChat grew to become the dominant messaging app in China, constructing a consumer base of greater than a billion, China moved swiftly to embrace cashless funds.
Taiwan has been late to the cashless recreation however picked up the tempo previously few years on the again of rising shopper acceptance of cellular funds, plus authorities efforts to encourage diminished reliance on cash. Cell-payment penetration reached 62.2% in 2019, up greater than 10% year-on-year, based on authorities knowledge.
Standing out within the crowd
Regardless of its robust positioning, LINE Bank may discover Taiwan a difficult market to interrupt into. Put merely, Taiwan is overbanked. Its retail banking market is among the many most saturated on this planet. Roughly US$1.6 trillion in belongings – about the identical as what Citigroup alone holds – is unfold out amongst 37 completely different banks. The banks all have their niches, however the market will not be massive sufficient for them to develop meaningfully.
The FSC urges consolidation however doesn’t go additional than that. Twelve mergers or acquisitions have occurred since 2004, however most have been too small to make a big effect on the trade panorama. The M&A instances have introduced Taiwan from 49 banks to 37 – nonetheless far too many for its market dimension. Market insiders say that labor-union resistance has prevented the large-scale consolidation that Taiwan’s banking trade wants to spice up competitiveness.
On the similar time, the FSC is cautious about disrupting the banking sector with digital upstarts. They are going to be permitted in Taiwan, however with some caveats. For one factor, neobanks are forbidden from buying a conventional bank, which can frustrate efforts to fast-track progress. Nor are they permitted to open shops. At first blush, that appears cheap for a enterprise that’s “digital” or “virtual.” The issue is that some clients may need the choice of opening an account or chatting with a customer support consultant in particular person.
If digital banks need to finally compete in wealth administration providers, which regularly contain massive transactions, being branchless might be an enormous drawback. “There’s a fairly restrictive environment for banking in Taiwan which limits how far it is possible to go with innovative banking services,” says Formosa Monetary’s Terribilini.
LINE Bank is betting on know-how to present it an edge over the competitors, notably in shopper lending. With its massive consumer base, LINE Bank can have troves of consumer knowledge at its disposal – knowledge that may be analyzed by synthetic intelligence purposes to make product suggestions to clients, observes Jon Jones, co-founder of Taipei-based blockchain agency Unitychain.
Extra knowledge ought to permit the AI instruments to higher goal customers’ preferences, ensuing of their spending extra time within the LINE app. In that manner, “the platform will become much stickier,” Jones says.
Recognizing that younger Taiwanese – who haven’t had time to construct credit score – wrestle to get standard bank loans, LINE Bank can be creating its personal model for assessing debtors’ credit score.
“It is a sore point for young consumers, so we will take the initiative by inviting them to use our model,” Morris Huang, chief govt of LINE Bank’s preparation workplace in Taiwan, stated at a press convention final yr.
LINE Bank’s model won’t be utilized by every other establishments and isn’t meant to switch Taiwan’s customary technique of credit score scoring utilized by the Joint Credit score Data Heart, the corporate says. The JCIC model offers card issuers with detailed info on an applicant’s credit score historical past and skill to repay loans.
In addition to Taiwan’s conventional banks, LINE Bank should deal with the 2 different recipients of digital bank licenses. Subsequent Bank can faucet principal shareholder Chunghwa Telecom’s 10 million subscribers, and its consortium additionally consists of three monetary establishments and the grocery retailer PX Mart, which has 9 million members.
Then there’s Rakuten Bank, which is Japanese like LINE however targets a special demographic. With its 21 million customers in Taiwan, LINE is casting a large web. Rakuten, in distinction, is focusing on present customers of its e-commerce platform in Taiwan, a lot of whom are working professionals aged 25 to 50 who spend lots of time on their smartphones and have an affinity for Japanese merchandise, says MIC’s Chu.
Rakuten is the one one of many three digital banks with important monetary trade expertise. It arrange in Rakuten Bank in Japan in January 2000 and has about 7.2 million customers.
In comparison with Subsequent Bank and Rakuten Bank, the stakes for LINE are greater. The non-banks holding majority shares in Subsequent and Rakuten are established worthwhile firms. However LINE went public solely 4 years in the past and is beneath stress to indicate traders it has a sustainable enterprise model. Within the fourth quarter of 2019, LINE posted an working lack of 11.5 billion yen at the same time as income elevated 8.6% year-on-year to 60.Eight billion yen.
With out establishing a much bigger fintech enterprise, LINE’s progress prospects are restricted. Stickers, promoting, and media solely go to this point, particularly when consumer progress is stagnant. LINE’s quirky messaging app has a loyal following in Japan, Taiwan, Thailand, and Indonesia – however that’s it. China has WeChat, South Korea has Kakao, and the remainder of the world makes use of WhatsApp and Fb Messenger.
Taiwan is the one one among LINE’s markets the place it has secured a digital banking license. If the corporate may change into a most well-liked bank for a good portion of its Taiwan consumer base – individuals who already use the app to talk with associates, conduct enterprise, store, and watch tv – it might have a shot at changing into Taiwan’s first tremendous app. That might be a formidable feat, and simply may assist Taiwan mint its first billion-dollar startup.