With the rapid advances of the information industry, the local bank is no longer just a nine-to-three-thirty operation. Banks have become twenty-four hour service centers, providing a variety of services via such electronic devices as automated teller machines, direct phones, network computers, and videos. Self-service is becoming the norm in banking, as financial institutions cut overhead.
Since the late 1980s, the worldwide financial environment has been moving toward liberalization, internationalization, computerization and "securitization." Under these trends, new financial technologies and innovative banking products and services are entering the market at a pace that leaves many marveling. Two ramifications are fierce competition in the banking sector and many operational changes in financial institutions. Administrative efficiency, regulatory flexibility, and product diversification are the new financial avenues being pursued. Those benefiting from these innovations include not only corporate banking but also retail banking or consumer banking. Tradition has yielded to the demands of convenience, and this is reflected in the diversity of services and channels currently provided by banks.
In the past, banks were simply institutions in which the general public deposited their spare money and borrowed for such major purchases as houses and cars. While these functions remain, many other banking products and services have been added. Such consumer banking services can be divided into five major categories: deposit and loan operations; foreign currency transactions; card services; trusts and securities; and miscellaneous services (including safe-deposit box rental, investment information, personal financial management consultation, and payment of taxes, utility bills, and other charges).
As the dual-income family is becoming the norm in Taiwan, there is seldom anyone at home during the day. Banks and post offices have responded to public demand by contracting collections with utility suppliers, so Taiwan's working people can pay electricity, water, gas and telephone bills at financial institutions. By the same token, taxes and education fees can be paid at banks, some of which even receive payments for traffic fines on behalf of local transportation administrations. Many people's monthly salaries and stock dividends are "direct-deposited" into their bank accounts here.
An increasingly popular banking service for Taiwan's wage-earners is the purchase of domestic and international mutual funds. Whereas the more-wealthy make such purchases directly with mutual fund companies or their branches here, ordinary citizens can purchase mutual funds at banks through fixed monthly installments of up to five years.
The most conspicuous example of current banking trends is in the area of card services, especially the credit card market. The older generation preferred to pay cash and buy the things they needed only after they had saved enough money. Martine Tseng (曾淑芬), vice president and head of marketing and business development at the Taiwan offices of Netherlands-based ABN -AMRO Bank, says that "for any new payment method to succeed, the main concern is the change in consumer behavior; therefore, public acceptance must be taken into account." To make it easier for the public to switch to or even just try a new payment method, Tseng stresses that value-added products must be provided--especially since it is a natural tendency for conservative people to avoid new ideas. "Security, accuracy and efficiency must be offered. Then, an effective educational campaign should be launched to make people believe that new products are better."
Nonetheless, people do learn fast, and the credit card market has been booming. According to the Ministry of Finance (MOF), the total number of cards issued grew from 585,590 in December 1989 to over 15.6 million in June 1998. Of these, 6.5 million have been returned, and 9.1 million cards are still valid.
Using credit cards also helps holders to raise their social consciousness. Chinatrust Commercial Bank, which markets the Lotus Card, donates 0.275 percent of card purchases to the Tzu-Chi Buddhist Compassion Relief Foundation, and Union Bank donates 0.2 percent of its Shalom Card expenditures to Mackay Memorial Hospital. E. Sun Bank issues its Artistic Card to lure users interested in the arts, by donating NT$2 out of every NT$1,000 spent to a foundation that sets up scholarships for young artists or college fine-arts majors. In this way, the card-issuing banks are able not only to polish their social images, but also to take a deduction on their annual income tax returns for the money transferred to charity organizations.
The pre-paid "electronic wallet" is also under development in Taiwan. "The advantage of such a payment method is its stored value. Such cards can be purchased individually or recharged, if the personal data of the user has been programmed into its integrated circuit [IC] chips," explains Margaret Yin (殷介芳), senior vice president of the Planning Department at the National Credit Card Center (NCCC). In the future, such "smart cards" can be developed for use with public telephones, on mass transit systems, at gas stations, convenience stores, fast food restaurants, and supermarkets.
A collateral development emerged in 1993, when Bank SinoPac began cooperating with Tamkang University to issue Taiwan's first campus-related card, with SinoPac transferring 0.2 percent of card expenditures to Tamkang for educational use. Four other universities have cooperated with Chinatrust to use IC cards since 1997. By storing the student's personal data, the school card can also serve as an identification card and a library card, and for other functions such as parking and accommodation. "College students are potential customers," says Younger K.L. Yang (楊各露), assistant vice president of Chinatrust's Department of Credit Cards, "especially since most of them will become white-collar workers." However, there has been considerable controversy recently over the required use of school cards, particularly among academics, who see such devices as serious invasions of student privacy.
The diversity of service channels fuels strong competition among financial institutions. "The trend worldwide is to provide multi-channel access for consumer banking customers, to provide them with the easiest and the most convenient way of accessing banking services," says Paul J. Scholten, senior vice president and country manager of ABN-AMRO Bank. Bankers in Taiwan now offer their services through at least six systems: the branch, the automated teller machine (ATM), the telephone, the video, the personal computer, and the Internet.
Each system has its own unique advantages, and people tend to use the different services for different types of transactions. "People can have the most comprehensive services if they visit the bank's branch office. But these offices are open only from nine o'clock to three-thirty, and they might have to wait in a long line," says Julius Chen (陳淮舟), president of Taishin International Bank. As for the electronic service channels, Chen points out that they offer banking services around the clock.
By the end of August this year, the number of bank branches in Taiwan had reached almost 2,400. More than twelve thousand ATMs have been installed to provide services twenty-four hours a day, and some of these are also equipped with direct phone links and Internet services. "The establishment of the twenty-four-hour service centers is in line with societal demands. Nowadays, people pursue convenience and like to have things done quickly. Therefore, we provide all the services allowed by current regulations in the electronic banking center," Chinatrust's Yang says.
Modern banks must give special consideration to the age factor in the consumer banking market. Because much of the older generation knows comparatively little about computer operations, they prefer to visit the branches, chat with the tellers, and make personal contact when depositing their money. The younger crowd, however, has been reared in the midst of electronic gadgets and is accustomed to self-service systems, especially now that the Internet has given them an opportunity for financial surfing.
Why did ABN-AMRO launch its first-ever video banking service in Taipei? Scholten attributes the reason to its customer base. "Our customer base in Taiwan is relatively young--between twenty-five and forty years of age--and slightly better educated than average. So we think they'll have a high interest in remote banking types of access channels." Martine Tseng cites promotion and company image as the main reasons. "Video banking is not designed to generate more transactions or sales; rather, it's a form of advertising," she says. "Because none of our Taipei branches is on the first floor, we have to create corporate awareness among the public. The twenty-four-hour service center is also a competitive strategy. It represents our view of access channels. What we are doing is 'niche marketing.'"
Bank expenditures in providing services vary greatly. Setting up a twenty-four-hour "peopleless" service center is costly, but it is much cheaper than setting up a branch, which requires larger space, more equipment, and well-trained tellers. Furthermore, under current regulations, the MOF allows the establishment of not more than five branches in a year, while the quota for service centers is twenty. This explains why banks channel an increasing number of services away from the countertop and into the digitized expanses of cyberspace, thus extending a bank's reach deeper into the consumer services market.
Computerized banking services in Taiwan were initiated in 1975, when local bank tellers first used computers to serve the public, says Wang Shi-hseng (王炘盛), spokesperson for the Financial Information System Center (FISC), an organization established by the MOF in 1987 to provide a nationwide financial information network. Since then, local banks have started to offer interbank transactions through the FISC. "Since US President Bill Clinton began to promote the concept of the 'Information Superhighway' in 1993, Internet banking has become an inevitable channel for banking services. With this new technology, banks can offer their services without the limitations of time or place," Wang continues.
However, there is real concern over the issues of system integrity and hacker-proof security, because personal data may be stolen in the transmission process or sold by the banks. While Citibank, E. Sun, and Fubon Bank have spent considerable amounts of money developing their own security systems, others prefer to wait until the government completes a universally accepted network. This is why most Internet banking in Taiwan actually remains Intranet banking, with special software installed into the customer's personal computer by the bank.
Another problem of extreme concern facing the banking community is the so-called "Y2K" challenge, a nickname for "the millennium bug" or "the year 2000 problem." Computers have historically stored dates as dd/mm/yy to save space, leaving out the two digits, 19. Therefore, it is argued, the Y2K bug will make computers that calculate years as two-digit combinations mistake the year 2000 for the year 1900. If unchecked, a worst-case scenario would be that all computer -controlled facilities shut down because of contradictions in the data.
The ROC Directorate General of Budget, Accounting and Statistics said in 1997 that over NT$15 billion (US$455 million) must be spent to solve the Y2K problems; however, implementation results show that two to four times the estimated amount may be the actual requirement.
"We have to be Y2K compliant by January 1999," Scholten says. Taishin and Chinatrust set the deadline in July 1999. FISC started a campaign to inform local banks about the problem of the millennium bug in 1996, and an ad hoc task force was established in October 1997. "We either revise the old systems or migrate them into the open system. Then we test and retest the revised or re-engineered systems to make sure they are Y2K compliant," Wang says. But nobody is certain of the result. If a bug still emerges, a backup file will serve as support. "And we will turn the system to manual function."
In the future, bankers plan to promote more innovative service channels. "Mobile phones can now transmit general, short messages, such as securities information," Yang of Chinatrust says. "We expect that the channel will soon be opened to conduct banking transactions." Scholten of ABN-AMRO would like to further the development of video and Internet banking services by providing more investment-oriented information and connecting with the insurance and securities sectors. "We would also like to offer packages of investment options to our customers," Scholten says.
"Competition in the banking industry is a positive factor, which delivers enhancements not only in the quality of service, but also in the creativity of the banking sector," Chinatrust's Yang says. Chen of Taishin agrees. "More specialists have been trained in the process. The high-tech mechanism has improved service efficiency and promoted liberalization and internationalization of the local banking services."