With the prosperous development of electronic commerce in recent years, the consumption patterns and payment tools of the consumers have also undergone drastic changes. Many consumers are accustomed to purchasing all kinds of goods on the Internet which were purchased at physical retail stores in the past. It is against such background that payment methods have advanced from physical ATMs or bank transfers in early days to online credit card transactions and online ATM money transfers. If the consumers are located overseas, they can also engage in online transactions through accounts with stored-value functionalities such as PayPal.
Recent years have seen a large increase of third-party payment operators in Taiwan. According to the Financial Supervisory Commission (hereinafter, the "FSC"), currently there are over 1,500 third-party payment service providers in Taiwan, and the output value of the entire electronic commerce industry (including B2C and C2C) was estimated at NT$880 billion in 2014.
On January 16, 2015, the Legislative Yuan enacted the Statute for the Administration of Electronic Payment Institutions, which is expected to go into effect three months after it is promulgated by the President. For third-party payment service providers, the greatest difference made by the legislation is that before the legislation, third-party payment operators which are not financial institutions could not handle stored-value business. After the legislation, a third-party payment operator may operate stored-value business after the electronic payment institution established by such operator is approved.
A reason why third-party payment operators could not operate stored-value business before the legislation is that under the Statute for the Administration of Electronic Tickets promulgated on January 23, 2009, all "debt instruments which store monetary value in electronic, magnetic or optical forms, which contain chips, cards, certificates or other forms with data storage or calculation functions, and which are used as multi-purpose payment tools" are electronic tickets (Article 3, Subparagraph 1), and only electronic ticket institutions established with government approval or financial institutions can engage in such business. Since the stored-value function provided by a third-party payment operator is very likely to fall within such definition of electronic tickets, direct operation and provision of stored-value services entail very high risks of legal violations unless the third-party payment operator also sets up an electronic ticket issuing institution or works with an electronic ticket issuing institution through other transaction frameworks and arrangements.
In general, in addition to the deregulated stored-value business mentioned above, the Statute for the Administration of Electronic Payment Institutions, which was just adopted by the Legislative Yuan, is also highlighted as follows:
- The upper limit on stored-value and transfer between accounts is set at NT$50,000, which will be adjusted by the competent authority, depending on the circumstances.
- The business of an electronic payment institution also includes "fund transfers between stored-value accounts" and "collection for substantive transactions with an amount held under escrow in excess of a specific threshold." Services involving an amount below such threshold are subject to general commercial management.
- Basically, electronic payment institutions can only operate the electronic institution business set by this law and can operate electronic tickets or other business concurrently only with the approval of the competent authority under exceptional circumstances. However, banks, post offices and electronic ticket institutions can also operate electronic payment institution business concurrently with government approval.
- A foreign institution can operate electronic payment institution business in Taiwan only after being established pursuant to law.
- Electronic payment institutions for which establishment application is filed by mainland China institutions and any person seeking to work with a payment institution of mainland China or to facilitate such entity's engagement of the electronic payment institution business in Taiwan shall obtain the approval of the Mainland Affairs Council in accordance with Articles 72 and 73 of the Statute for Relations between the People in the Taiwan and Mainland China Areas.
- The legislation also contains certain requirements for the business administration of electronic payment institutions. For example, all stored-value and payment collection amounts shall be held in trust or entail full performance guarantee from a bank.
- When a certain amount of New Taiwan Dollar and foreign currency stored-value is received by an electronic payment institution, a sufficient amount of reserve shall be made.
- For payment collection, such amounts shall be stored and maintained via dedicated deposit accounts, which electronic payment institutions shall not use in other ways or designate for use in other ways by a bank at which a dedicated deposit account is opened.
- The amount of the stored-value payment can be utilized in low-risk manners or to purchase financial products within a certain percentage, such as bank deposit, government bonds, treasury bills, negotiable bank certificates of deposit, etc.
It is particularly worth mentioning that electronic payment is broadly defined under the Statute for the Administration of Electronic Payment Institutions. Therefore, third-party payment operators can expand their operation to the electronic payment field. Under Article 3 of the Statute for the Administration of Electronic Payment Institutions, the third-party payment services provided by an electronic payment institution "use electronic equipment to transmit payment information through network connections." According to the special explanation in the reasons for the draft prepared by the Executive Yuan, "the business items of the electronic payment institutions under the Statute include payment service types for transactions in physical channels (offline transactions) (i.e., O2O, Online to Offline); and therefore, the electronic equipment in the 'use of electronic equipment to transmit payment information through online connections' is not limited to traditional desktop computers and also includes mobile carriers (portable equipment such as tablets and cellphones) and other equipment which may transmit information through online connections." Therefore, third-party payment operators can also provide services that allow their members to make and collect payment through mobile equipment.
Currently, the mobile payment service market in Taiwan has just burgeoned. Trusted service managers (TSM) relating to mobile payment include Alliance Digital Tech Co., Taiwan Mobile Payment Co., Ltd., Smart Catch International Payment Co., Ltd., and the TSM system built by Chunghwa Telecom have all become operational. The participating service providers are primarily credit card issuing banks (credit card services), Easy Card Corporation (Easy Card), and companies that provide membership cards.
Since the Statute for the Administration of Electronic Payment Institutions does not limit a third-party payment operator's expansion of its services from the Internet to physical stores, it is imaginable that under proper conditions, third-party operators may work with TSMs in the future or expand the scope of their operation to physical stores through other information security systems to create cooperation and competition relations with banks and electronic ticketing institutions. In view of overseas developments, third-party payment operators such as PayPal and Amazon have spared no efforts in expanding their mobile payment business.
However, due to restrictions under laws and regulations, the provision of third-party payment and mobile payment services mentioned above are not without barriers. For mobile payment, the Operating Guidelines for Security Control for Handset Credit Card Business by Credit Card Business Institutions, whose recordation is approved by the FSC on November 16, 2012, are guidelines based on the TSM technical concept. Therefore, whether a mobile payment service based on a technology different from TSMs (such as Visa Token used by Apple Pay and HCE by HCE) can pass the review of the Financial Supervisory Commission is questionable.
In addition, the Statute for the Administration of Electronic Payment Institutions has just been adopted with relevant ancillary laws still being prepared (the FSC expects to complete the formulation of ancillary laws within three months after the bill is promulgated). Whether the expansion of electronic payment institutions to physical mobile payment will be specifically stipulated in the ancillary laws as promulgated is still not known. If an operator has such service plan, it should actively contact the FSC or proactively participate in the public hearings regarding the formulation of relevant ancillary laws to provide concrete recommendations regarding the formulation of relevant ancillary laws so that their provisions can accommodate technological development and industry needs.
In conclusion, the third-party payment industry has been able to operate stored-value business after the Statute for the Administration of Electronic Payment Institutions was adopted and will not feel handicapped in implementing relevant business promotional plans. In addition, mobile payment is a general trend now. It is necessary to further modify relevant ancillary laws for mobile payment such as the Operating Guidelines for Security Control for Handset Credit Card Business by Credit Card Business Institutions and relevant ancillary laws based on the Statute for the Administration of Electronic Payment Institutions to accommodate technological advancement to prevent such laws from becoming another factor that undermines innovative development again.