Case Study: Taiwan’s archaic banking is slowing the growth of foreign startups
While expats rank Taiwan as the best place for them in terms of having high quality of life and work conditions, foreign startups are complaining about how the banking system slows down the conduct of their business.
To be sure, Internations survey in 2021 ranks Taiwan 1st out of 59 destinations for the third year in a row with expats satisfied with their job security, the state of the local economy, quality of medical care, and overall safety.
In a reddit poll that has now reached 17,000 views with an upvote rating of 94%, we asked why it is hard for foreigners to conduct banking in Taiwan and the answers were circled around three main issues – Taiwan’s capital control, lack of technology integration, and the presence of many banks.
Capital Controls
“Capital controls for the most part. Taiwan’s financial system isn’t as integrated with the global financial system, by design. This goes back to having to keep the exchange rate stable,” one Reddit user said.
Hsin-Yi Yu, an associate professor at National University of Kaohsiung, has written an opinion piece for Nikkei Asia explaining Taiwan’s capital control. For example, she cited that there were calls to further tighten regulations on the flow of Chinese capital to Taiwan and close loopholes such as routing Chinese money through Hong Kong to make it seem like it is not from the mainland.
She said that tightening the regulations on the flow of Chinese capital to Taiwan is a double-edged sword.
“Compared to Hong Kong and Singapore, Taiwan already has relatively strong foreign exchange controls and many restrictions on financial commodities. If Taiwan wants to become a financial center in the Asia Pacific, Chinese funds must flow into it,” she said.
But she also said, “Further tightening of Chinese capital will lead to serious economic problems. The chilling effect will deter other foreign capital, which will drive up the cost of capital overall, reduce employment opportunities and make the capital market less efficient.”
Lack of technology integration
Another Reddit user noted that the National Credit Card Center ( 財團法人聯合信用卡處理中心 ) is “decades behind the rest of the world and they don’t seem to care as long as their members control as much as possible.” “Hated working with them on a credit card payment system,” he said.
One pain point cited by user johnchen902 is the “need to physically visit the bank for legal international wire transfers.” “The government body responsible for this is 金融監督管理委員會, he said.
Another user who said he was a former engineer in Taiwan’s bank said “my opinion is that the whole bank ecosystem is like government departments. They want to play safe and refuse to accept new stuff. No one is willing to take this responsibility.”
Taiwan’s financial industry requires reform in general as there are too many banks, according to another Reddit user. “Most banks do not offer FinTech associated products because there aren’t volumes to make the investment worthwhile, he said.
Too many banks
In a report by Lee Ming Ling for Banker’s Digest, Taiwan has 18 bank branches and 161 ATMs for every 100,000 adults. “The convenience of financial services is higher for Taiwanese people than the global average, but this also shows that Taiwan’s banking industry is excessively competitive,” Lee said.
Too many banks lead to excessive competition and low profits due to thin operating margins and low returns on assets.
This could be the reason why many banks don’t want to risk lending to foreigners. For instance, one user said he was denied for a loan. “ESUN was more up front about it. They said since I had foreign passport, I could just leave without repaying the debt.”
Another said “Taiwanese banks–as opposed to foreign owned ones such as Citi, HSBC, etc–seem to be so vehemently against issuing credit cards to non-Taiwanese nationals.”
Many in the discussion thread agree to the above statement while one claims to have easily gotten three credit cards as a single foreigner ARC holder.
Foreign startups are feeling the pinch
Taiwan’s archaic banking is slowing the growth of foreign startups. In separate discussions on social media, foreigners who are setting up their companies complain about banking in Taiwan, mainly focused on opening bank accounts and payment gateways.
PayPal
PayPal seems to be the go-to payment gateway chosen by foreigners because other local options are not foreign-friendly in terms of language and support.
“Taiwan to my understanding is the only country that gets charged 4.4% for every transaction. Then, ESun robs you a further 2.5%. That’s nearly 7% in fees before your money actually hits your account. Also, both PayPal and ESun bank aren’t exactly in a hurry to process payments. Do yourself a big favour and only use PayPal if there are no other options, said a foreigner from the UK in response to questions about using Paypal.
Another pain point is that paying with a Taiwan PayPal to another Taiwan PayPal account does not work. A work around is to ask your client to use credit card when this is the case.
Only one bank works with PayPal in Taiwan and Graham Osborne, an entrepreneur from Australia, shares his tips.
1.The process of opening an account with ESun Bank can be smooth or lengthy. Make sure you have all your documentation with you. It can take anywhere from 30 mins to a couple of hours, depending on the day and how busy they are. If you have somewhere to be, I’d advise going for 2 to 3 hrs. before your next obligation.
2. Make sure you have the same name on both your PayPal and bank account. It WILL NOT sync otherwise. The bank legally cannot change the name of your account. So, you will need to change your PayPal account name.
3. When you open an account, they will give you 2 pass books. 1 for Taiwan dollars, and 1 for US dollars. I don’t know if they accept other currencies. You will need to enquire about that yourself.
4. When using the ESun online banking portal. You will need to be on a laptop or desktop. The site is not mobile friendly and it will not work. The banking system in Taiwan is 60 years behind, seriously what did you expect.
Banks denying new accounts
In a separate note, many foreigners on Facebook are also saying that some banks reject their application for opening an account.
“I’m an ARC holder,I tried to open an account in E sun bank. They made me wait for some time and said go to Mega bank because their service is better, Mega bank is even crazier and didn’t want to say much about it. In the end I didn’t open an account yet,” said one user.
Another user also claimed to be sent to another bank by ESun and the teller insisted that other banks in Taiwan can be used for linking to PayPal which is not true.
ECPay
Mark Hsu, a Taiwanese-American investor and entrepreneur based in Taiwan said some of his companies use ECPay. A Facebook user from the Philippines said ECPay has high fees apart from their tech support not responding to inquiries in English.
“A more technical savvy company integrates [ECPay] directly with Taihsin Bank. The advantage of direct integration with a bank is that the processing fees are some of the lowest in the world, 1.5 %,” said Hsu.
Another startup founder from New Zealand said connecting payment gateway to local bank to save on fees is “not always the easiest or most user-friendly option.”
“We were considering connecting directly to our company’s bank (First Commercial) but their API was in Chinese only which would cause our partners in India to go crazy. Also, the payment tracking dashboard was terrible, badly designed, not enough useful info included, etc.
They also didn’t have as many payment options as ECPay. Also, unless you already have a well-established company bank account with years of solid cash flow banks generally won’t let you use their payment systems. Difficult for startups,” said.
He also cautioned foreigners to make sure that their online businesses are registered before using the local payment gateways. For example, the law requires sending electronic invoice (e-invoice) for selling in Taiwan.
ECPay charges for collection of payments and sending electronic invoice, these are two separate products. Some choose ECPay for the collection gateway and another for the e-invoice such as Newebpay.
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