As China makes headway to becoming the world’s first cashless economy—and other markets follow its footsteps—Taiwan is dragging its heels. For an average person who lives in Taiwan, paper money and plastic bank cards are still an indispensable part of daily routine.
Currently, only 13% of the population in Taiwan uses mobile payment, lagging significantly behind its Asian peers. A recent eMarketer report shows that mainland China is leading in mobile payment adoption, accounting for 61.2% of worldwide user base in 2018. And India, which saw a 75.5% increase in the number of users the past two years, has become the world’s fastest growing mobile payment market.
Taiwan’s faith in cash
Taiwan’s slow adoption is a bit surprising considering that its economy took off decades ahead of mainland China and many of its neighbors in Southeast Asia. On top of that, Taiwan’s smartphone penetration is one of the highest in the world and is expected to reach 93% this year. The National Development Council data show that over 80% of the population have access to mobile internet.
The general public is also knowledgeable and keen to try out the new payment methods. According to research by Mastercard, 61% of consumers in Taiwan are aware of NFC (near-field communication)—the underlying technology of behind many popular mobile payment services including Apple Pay and Samsung Pay—and with more than 80% of consumers willing to try or continue using contactless payments.
Taiwan has the technology, the infrastructure, and the means necessary to press ahead with mobile payment, the government’s reserved attitude towards digital payment is largely due to security concerns that persist over mobile and e-payment systems for years. The government had been taking a conservative approach with digital payment methods even when mobile payment became mainstream in mainland China back in 2016.
After the government relaxed regulation on third-party payment in 2015 (in Chinese), the mobile payment market started showing signs of life with more service providers entering the scene, but consumer habit was still deeply rooted in cash and card.
No need to upgrade
Largely speaking, mobile payment has remained niche in many developed economies — Taiwan and Japan are prime examples. Emerging economies, on the other hand, are much quicker to embrace the new payment methods.
Fintech solutions like mobile banking and mobile payment offer answers to many of the challenges developing countries have long battled, such as the proliferation of counterfeit money, limited access to bank services (particularly in rural areas), and the absence of a well-established financial system. In a way, these barriers have driven the adoption of mobile money in developing countries. That explains why China and India are two of the fastest growing markets for mobile payment methods.
In Taiwan, traditional payment methods have worked well for a long time, payment cards usage and penetration is quite high, and mobile wallets seem more like an alternative rather than a necessary upgrade. For many in Taiwan, traditional payment methods are generally considered to be more secure and trustworthy than digital payment—even though many have argued it is the other way around. This plays a part in why mobile payment usage remained lackluster in spite of the wide variety and availability of non-cash payment options.
According to Nielsen’s Mobile Shopping, Banking, and Payment report, over half of Taiwan respondents said they are unlikely to use mobile payments in outlets like bars, restaurants or retail stores, which is a higher than the global average of 40%. Close to 73% said they have security concerns about mobile payment methods.
Winning the hearts of the small and unregistered
For mobile payment to be ubiquitous, local and small businesses need to also be on board. These businesses, however, aren’t keeping up with the government’s cashless ambition, which aims to reach 90% of smartphone users using mobile payments by 2025, a huge leap from the current 13%.
For small businesses, integrating the payment technology such as NFC-enabled terminals are costly, especially when consumer demand for such services is still tepid. And, of course, there’s also the issue of taxes.
Taiwan has over 400,000 registered small businesses with sales of under NT$200,000 (~ $6850) a month—that’s one-third of all registered businesses. They have shown low interest to cooperate because many of those businesses have expanded into larger operations and they fear they would be subjected to higher tax rate if they go digital.
Unregistered businesses, accounting for over 3% of Taiwan’s GDP, are also hesitant to cooperate with the government for similar reasons: integrating into the formal economy means they would have to start paying taxes.
In January, the Ministry of Finance rolled out tax incentives targeting small businesses, which allows them to continue paying the 1% business tax for three years until the end of 2020 even if they have expanded their operations, as long as they provide mobile payment options to customers. South Korea also had a similar tax incentive to boost mobile payment adoption.
All sorts of confusion
There are many barriers to mobile payment becoming ubiquitous in Taiwan, but the lack of availability of payment services is not one of them. Back in early 2017 when Taiwan opened its arms to the three global mobile wallet providers—Apple Pay, Android Pay, and Samsung Pay—it was already a crowded market.
But even with more than 20 mobile wallet providers currently operating in Taiwan, only a few are popular. A survey conducted by Market Intelligence & Consulting Institute shows that 25.2% of respondents who use mobile payment systems preferred messaging app LINE’s payment feature LINE Pay — ahead of Apple Pay (17.9%) and the Taiwan-based JKo Pay (街口支付 10.9%), and the Google-operated Android Pay (9.9%).
There is not one service provider that can be used widely enough across different sales channels. Larger convenient store sand hypermarket chains like Family Mart and 7-11 can support as many as seven different payment apps, whereas smaller businesses that do support mobile payment usually accept only one or two apps as payment options.
“I use Apple Pay, but it is quite frustrating sometimes because other than convenience stores and some large department stores, a lot of places that are still cash-only,” a mobile wallet user told Technode. Unlike China where there are unified platforms like Alipay and WeChat Pay that allow most banks to expand their services on, service providers in Taiwan partner with only a selected few banks. LINE Pay, the most used mobile payment system, is tied to just one local financial service.
There are many other non-cash payment options to fall back on, which gives consumers one less reason to use mobile payment. For example, some smartphone users favor banking apps with e-wallet features. There’s also the popular EasyCard (悠游卡), a contactless smart card that can be used across all public transport and convenience store chains. “I used to use LINE Pay, but EasyCard is still what I use more frequently to pay for day-to-day expenses,” another user told us.
Last September, the government launched its own mobile payment app, Taiwan Pay, which supports both NFC and QR code functionality. It’s still too early to tell whether it can stand its ground, but at least it is doing something different. The payment app has teamed up with more than ten local banks and is looking to expand their partnership (in Chinese) to support international financial service providers such as VISA, Mastercard, and JCB. The e-wallet also features “t-wallet” which can be linked to both debit and credit cards. Most mobile wallet apps in the market can only be linked to credit cards. This is could help boost mobile payment usage in Taiwan since debit cards are a payment option that young people and students have easier access to and express the strongest interest in using mobile payments among all age groups. Whether Taiwan Pay can boost mobile payments will depend on whether it can address consumer pain points and streamline the payment experience.
Mobile payment will play a vital role in ushering in the era of cashless society, but Taiwan needs more than just a nudge. For mobile payment to become ubiquitous, there should be mobile payment platforms that are supported across different outlets and are able to provide services that allow consumers to use from shopping and dining to taking taxi rides and paying for daily expenses with no hassle! The government will need to win the cooperation of industries, financial services, and businesses — large and small.
But there are reasons to be optimistic. The government has been proactively promoting mobile payment and implementing policies to encourage mobile payment usage the past three years. Whether or not cash and cards can truly be replaced by mobile wallets, the verdict, however, is in the hands of consumers.