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Industry leaders gathered for the Finance Taiwan Briefing and Dialogue to discuss the future of digital finance, regional expansion strategies, and the incorporation of sustainability into financial practices. This annual event, hosted by The Asian Banker, is one of the most prestigious in Taiwan’s banking sector. This year’s event brought together senior executives from leading financial institutions to discuss critical trends, challenges, and opportunities that will shape the industry’s future.

Banks that participated this year included Bank SinoPac, Cathay United Bank, Cathay Financial Holdings, CTBC Bank, E.SUN Bank, and HSBC Taiwan.

Digital transformation and innovation

Taiwan’s banking sector is rapidly changing, owing largely to advances in digital and virtual banking technology. Leading institutions have been at the forefront of using technologies such as AI, big data, cloud computing, and blockchain to improve customer experiences and streamline transaction processes. Over the last eight years, these banks have fostered an innovative culture, combining business and technology to provide a seamless customer experience.

As the digital transformation continues, these banks’ next major focus will be the adoption of Generative AI (GenAI). One bank has collaborated with Taiwan AI School to provide senior executive training programs, with the goal of integrating AI into corporate culture from the top down. Bankers anticipate increased adoption of GenAI, with a focus on improving internal efficiency and customer understanding through better data management, while remaining vigilant for regulatory concerns to avoid misinformation.

Technology, financial crime and fraud

Despite the opportunities, the digital transformation of Taiwan’s banking sector poses significant challenges, particularly in terms of financial crime and fraud. Participants echoed the importance of industry-wide collaboration among financial institutions, governments, and other stakeholders in effectively addressing these issues.

Another critical challenge is to maintain operational resilience during the digital transition. Bankers emphasised the importance of strategic resource allocation and risk management in ensuring that innovation does not jeopardise security. The financial services industry has made significant investments in upgrading core systems and infrastructure to ensure a secure digital banking environment.

Regional expansion strategies

Taiwanese banks are increasingly focussing their expansion strategies on regional markets, particularly in East and Southeast Asia. Historically, overseas ventures have focused on corporate banking and serving Taiwanese clients abroad. However, these markets are now seeing a significant shift towards consumer banking, owing to population growth and favourable interest rate spreads.

This shift creates new challenges, such as navigating complex regulations, managing cultural differences, and controlling costs. To address these challenges, some banks have taken a digital-first approach, leveraging digital ecosystems and localised platforms to effectively serve retail customers without the need for a large number of physical branches. Participants emphasised the importance of strategic decision-making in deciding whether to focus on a single country or to implement a scalable platform-based strategy across multiple markets.

Serving retail customers in foreign markets requires a significant investment of capital, so banks prioritise identifying and targeting appropriate customer segments. Some focus on private banking in Hong Kong and Singapore, meeting clients’ global asset allocation needs. One leading bank has implemented a strategy of entering new markets through wealth management services, which require less capital investment and generate fee-based revenue. This strategy enables it to gain a strong foothold in highly competitive markets by targeting high-net-worth individuals.

Sustainability and ESG initiatives

Taiwanese banks are also making significant progress in promoting environmental, social, and governance (ESG) initiatives, going beyond traditional lending practices. A pioneer in green financing offers loans tied to solar energy projects to help businesses transition to renewable energy sources. Another has introduced a number of green fintech solutions that allow clients to track their carbon footprint and assist with green financing evaluations.

One participant was particularly concerned with mitigating the risks associated with greenwashing—when companies exaggerate or misrepresent their sustainability efforts in order to attract investors or customers. This practice undermines legitimate ESG initiatives and may mislead stakeholders. Some banks have deeply integrated ESG into corporate strategy, focussing on climate, health, and talent development. While some organisations direct investments towards a low-carbon economy, others look at ground-level initiatives such as improving financial services for an ageing population.

Banks are investing heavily in developing future talent, which the industry sees as critical to long-term economic growth and innovation.

Participants also look at taking an organic approach by emphasising social sustainability in its retail banking operations, with initiatives to revitalise rural areas in Taiwan, assist small-scale farmers, and promote regional development through collaboration with government agencies and educational institutions.

Economic and sector-specific challenges

Despite advancements in digital transformation and regional expansion, Taiwan’s financial sector faces numerous challenges. The insurance industry, in particular, is dealing with low interest rates, regulatory pressures, and shifting customer expectations, all of which are raising profitability concerns. Low returns on traditional life insurance products are reducing margins, while an ageing population raises liabilities, particularly in health and long-term care. The sector is also under pressure to modernise and provide digital solutions, which necessitates significant investment. Intense competition from both domestic and international players is driving premiums lower, necessitating rapid adaptation to maintain growth and profitability.

Another source of worry is the slowing growth of lending to small and medium-sized enterprises (SMEs) in Taiwan. The projected compound annual growth rate (CAGR) of 6% until 2025, down from 11% between 2015 and 2020, raises concerns about the economy. Reduced credit availability could stifle SME growth, innovation, and job creation. Economic uncertainties, banks’ cautious lending practices, and a shift in focus towards larger firms have all contributed to this. This decline highlights the need for alternative financing solutions and may prompt policymakers to consider interventions to support SME financing, which could have an impact on Taiwan’s economic dynamism and global competitiveness.

Growth opportunities

Despite these challenges, Taiwan’s AI boom is resulting in significant growth in the core affluent and high-net-worth individual segments. By 2025, Taiwan’s affluent population is expected to exceed three million, with the high-net-worth segment continuing to grow rapidly. Banks are positioning themselves to capitalise on this wealth effect by targeting these profitable customer segments in order to maintain growth trajectories.

Taiwan’s banking sector stands at the intersection of innovation, regional growth, and sustainability, with industry leaders embracing these trends to secure their future competitiveness. The discussions at the Finance Taiwan dialogue underscore the critical importance of digital transformation, particularly through AI and big data, in reshaping customer experiences.

As Taiwanese banks expand their footprint in East and Southeast Asia, they are redefining their strategies to navigate new markets, while sustainability efforts are becoming deeply embedded in their operations. These collective efforts position Taiwan’s financial institutions to not only thrive in a rapidly evolving global landscape but also to lead by example in fostering a more inclusive, resilient, and sustainable financial ecosystem.

The road ahead will require careful balancing of innovation with security, local market dynamics with global aspirations, and profitability with social responsibility.

 

Join us at our next event
Thought Leadership Briefing on
Creating Nex-Gen Customer Loyalty
in Financial Services
Jointly organised by The Asian Banker and Collinson Group
Date: 29 August 2024
Time: 4.30pm
Venue: See you at the Michelin-starred restaurant Orchid, 83, Section 2, Anhe Road, Da’an District, Taipei, 106, Taiwan
For further details and registration, please contact Eunice Foong: efoong@theasianbanker.com

Digital Transformation, AI, Big Data, Cloud Computing, blockchain, Customer Experience, consumer banking, east asia, cultural differences, costs, digital ecosystems, carbon footprint, economic growth, ai boom, affluent population, ageing population, digital solutions, economic uncertainties, cautious lending practices, alternative financing solutions