Taiwan and Japan's virtual banking market

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“One of the biggest advantages of operating an online bank is that operating cost is significantly lower than traditional banks that need to operate branches,” – Rakuten


The Financial Services Commission (FSC), Taiwan aims to keep the trend of digitalization and business opportunities. To do so, it released the policy on establishing and operating virtual banks on 26th April 2018. This effort of the regulatory body is to encourage financial innovation and deepen financial inclusion in order to meet the needs of young generation consumers (as stated in the FSC press release).  

Going beyond the initial limitation of only granting 2 licenses, FSC granted licenses to three consortia in July 2019, Next Bank, Rakuten International Commercial Bank, and Line Bank. The FSC expects that the three banks will drive market innovation and development, as well as promote competition through new business models and technologies, and hence enhance financial inclusion. According to a feasibility study by FSC, the issuance of virtual bank licenses will send a signal committing financial regulators to cultivate a technology-friendly environment in Taiwan, further attracting global players to enter the market.

Current scenario

The Next Bank plans to build eco-finance, leading the creation of a credit-based financial application over an innovation platform. The consortium formed by Chunghwa Telecom, Mega International commercial bank co, Shinkong financial holdings, PX mart co, KGI Bank, Trade-van Information service co (IT Services), aims at integrating telecommunication services with financial services.

In Taiwan, Rakuten has formed a strong ecosystem cantered around the e-commerce and credit card businesses. This helps to further scale its operation with a formal virtual banking license. The bank plans to attract at least 500,000 clients in the first year of operation and 1,000,000 by the second year and expects to break even by the third year. Rakuten bank is a consortium between Rakuten (Japanese e-commerce firm) and Waterland Financial Holdings (Taiwanese securities brokerage company).

The Line group is a messaging app that has a customer base of 21 million in Taiwan, which it plans to leverage by creating the app into a super banking app. A consortium formed between LINE Group (Japanese app operator), Taipei Fubon Commercial Bank, CTBC, Union Bank, Taiwan Mobile, FarEasTone, and Standard Chartered. It plans to leverage its banking partners’ expertise in risk management, financial products, services design, compliance and anti-money-laundering measures to map out an internet-only banking business plan for the Taiwan market


The first virtual bank in Japan was established on 19th September 2000, namely Japan Net Bank. It obtained the banking license under Article 4 of Japan’s banking law. The Company became ‘Japan’s first Internet-only bank’ with the investment of Sakura Bank, Sumitomo Bank, Fujitsu, Nippon Life Insurance Company, Tokyo Electric Power Company, Mitsui & Co., NTT DoCoMo, and NTT East Japan.

However, the regulatory authorities have not come up with a distinctive banking policy or license for banks to operate virtually. The region has paved out in different economies to form consortiums (e.g., Japanese application provider LINE group established LINE Financial Taiwan) for establishing virtual banks, but still remain averse to fully penetrate its homeland. The key reason is the lack of mindset shift among the Japanese population to “do away with” luxurious bank branch experience and adopt the intuitive application-based banking interface. According to the World Bank’s financial inclusion study 2017, only 33% of the Japanese population use a mobile phone or internet to make transactions from their account.

Current scenario

Despite the population resistance, many traditional banks have branched-out to form virtual banks, for example, in 2007 SBI Sumishin Net Bank – jointly established as an innovative customer-oriented new bank, by SBI Holdings and Sumitomo Mitsui Trust BankAnother example is Jibun Bank, an online banking joint venture of The Bank of Tokyo Mitsubishi UFJ and KDDI Corporation (telecom company). The bank distinguishes itself as a “Smartphone Bank” and offers its banking services via a single mobile banking application.

Additionally, the mobile phone companies (NTT-DoCoMo, SoftBank and AU), Rakuten, LINE, and Yahoo! Japan have emerged as new forces and entered the financial service sector with ‘zero-footprint/internet banks’ powered by mobile fintech platforms. However, their existing financial services offering continues without being morphed into an actual virtual bank.


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