Rakuten bets on digital banking in Taiwan

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In July, Taiwan's Financial Supervisory Commission (FSC) granted three virtual-banking licenses, surprising some observers who expected the regulator would only issue two. All three teams that applied for the licenses - led respectively by Japanese super app Line, Taiwanese telecoms firm Chunghwa Telecom and Japanese e-commerce giant Rakuten - were well qualified, such that the FSC felt they all deserved to launch neobanks in Taiwan.

Had there only been two licenses granted, Rakuten may have lost out. After all, the FSC would have been unlikely to deny a license to Taiwan's own Chunghwa Telecom, or to Line, which has invested heavily in Taiwan and is the most popular messaging app on the island by far. For Rakuten then, this is a best-case scenario and an important opportunity to further develop its fintech business. The company has long been present in the Taiwan market, offering a local credit card, but its core e-commerce business has a fairly light footprint.

While Line and Rakuten are both Japanese tech firms, they are targeting very different market segments in Taiwan. Line is focused on its large existing user base, which includes almost all smartphone users among Taiwan's population of 23 million, while Rakuten and its local partner, IBF Financial Holdings Co Ltd will focus on the Japanese e-commerce firm's own customers and people interested in "Japanese-style financing," according to the FSC. In July, FSC chairman Wellington Koo lauded the three groups for "distinct [fintech] innovations," in Rakuten's case pointing out the company will allow its clients to open a dual-currency account and conveniently withdraw Japanese yen with a Taiwanese card.

"Rakuten is one of Japan's most successful internet companies and has a long-established digital financial services business," says Lee Cheng-hwa, an analyst at the the Taipei-based Market Intelligence & Consulting Institute, a semi-governmental research firm. Those factors will be a boon to the company's foray into digital banking in Taiwan, he adds.

A digital bank will allow Rakuten to introduce financial services into its growing ecosystem in Taiwan. In late 2018, the Japanese firm began working with Taiwan's e-commerce platform PChome to boost cross-border e-commerce trade. The two companies established a Chinese-language interface on Rakuten's ruten.com site (for the Taiwan market) that allows Taiwanese consumers "to get a taste of what is currently trending in Japan" and purchase items with Taiwan's own currency.

In April, Rakuten inked a strategic partnership with PChome. Under the terms of the agreement, the two companies will combine PChome’s "PPoint" and Rakuten’s “Super Points,” allowing customers to accumulate and redeem reward points with a unified system.