This is a translation of the original Mandarin Chinese article by Yi-Kai Chen and Christine Chen, which can be found here. Translation by Paul Cox.
Taiwan’s Legal Regime for Electronic Payments, Past and Present
An extensive amendment to the Act Governing Electronic Payment Institutions (“Electronic Payment Act”) was passed by Taiwan’s Legislature on 25 December 2020 and will take force on 1 July 2021. The competent authority for the Act, the Financial Supervisory Commission (FSC), has indicated that the revision and adoption of harmonizing secondary legislation will be completed by the end of June and will take force at the same time as the amended Act.
Glancing back at the history of electronic payments in Taiwan, some businesses began foraying into the electronic payment and third-party payment realms as early as 2001. In the ensuing years, though, the lack of a law specifically addressing electronic payments caused uncertainty and instability in regulatory supervision and legal compliance. Finally, the Electronic Payment Act was passed into law in 2015.
In Taiwan today there are five institutions engaging exclusively in electronic payment business, and many banks and electronic stored value card issuers that operate electronic payment services among their multiple lines of business. Electronic payment is a briskly developing sector. The names of the five dedicated electronic payment companies and their e-payment services are PChome InterPay Inc. (PChome InterPay), GAMA PAY Co., Ltd. (GAMA PAY), Jkopay Co. Ltd. (JKOPAY), O’Pay Electronic Payment Co., Ltd. (O’Pay), and ezPay Co., Ltd. (ezPay).
Although more and more businesses have launched e-payment services under the Electronic Payment Act prior to its amendment, the Act as originally passed lacks adequate flexibility and comprehensiveness to accommodate swift developments in the sector. One problem has been that Taiwan has two separate laws regulating electronic payments and electronic stored value cards respectively: the Electronic Payment Act and the Act Governing Issuance of Electronic Stored Value Cards (“Electronic Stored Value Card Act”). Some businesses, however, operate both types of business, and inconsistencies between the two laws have caused inconvenience in legal compliance. These issues prompted the Legislature’s overhaul of the Electronic Payment Act in late 2020. The amended Act allows greater flexibility in the electronic payment sector, accommodates the trend in business toward click-and-mortar (virtual-physical) integration, harmonizes the regulation of electronic payments and electronic stored value cards, and eliminates inconsistencies in supervision. What kind of changes will this extensive amendment likely cause in the e-payment market? And which are particularly worthy of note?
Changes You Should Be Aware Of
1. The Amended Act Integrates the Electronic Payment Act and the Electronic Stored Value Card Act
The most conspicuous change made by the current amendment is the integration of the Electronic Payment Act and the Electronic Stored Value Card Act. The pre-amendment law imposes a dualistic framework distinguishing between payments made using physical electronic stored-value instruments (for example, the EasyCard stored value card), and electronic payments made without a physical stored value instrument. Given the broad trend in business today toward online-offline integration and omnichannel services, the line between the physical and the digital is becoming increasingly blurred, and it now seems superfluous to treat these types of transactions differently.
The amended Electronic Payment Act expressly incorporates the originally separate category of “electronic stored value card issuers.” The current Electronic Stored Value Card Act is to be repealed after the amended Electronic Payment Act takes force. The Legislature, however, has not yet passed a bill for the repeal of the Electronic Stored Value Card Act. If the latter Act has not yet been repealed by the time the amended Electronic Payment Act takes effect, there may ensue a transitional period during which existing electronic stored value card issuers will be subject to simultaneous application of both Acts.
Article 58 of the amended Electronic Payment Act provides that electronic stored value card issuers that were approved by the competent authority before the amendment shall be deemed to have already obtained approval as electronic payment institutions (EPI). However, if an institution does not meet the requirements of the amended Act, it must adjust and come into compliance within 6 months after the amended act takes effect and submit relevant documents to the FSC for the record.
Taiwan currently has four electronic stored value card issuers, and all four concurrently operate electronic payment business under the pre-amendment Electronic Payment Act. The names of these companies and their e-payment services are EasyCard Corporation (EasyWallet), iPASS Corporation (LINE Pay Money), icash Co., Ltd. (icash Pay), and Yuan Hsin Digital Payment Co., Ltd. (Happy GO Pay). These four electronic stored value card issuers are likewise required to comply with regulations governing electronic payments and will need to adjust and bring their operations into compliance with the amended Electronic Payment Act.
2. The Amended Electronic Payment Act Relaxes the Scope of Business of EPIs
(1) Deregulation of Fund Flows Across Different EPIs
In the past, users of electronic payment services could transfer funds only across the platform of the same EPI. Article 6 of the amended Act allows inter-institutional fund flow services. Now, consumers will be able to transfer funds between different EPIs, i.e., to make “account transfers” between different electronic payment platforms. However, under the constraints of the financial regulatory system, EPIs must route such inter-institutional fund flows through a clearing institution that satisfies the requirements of the Banking Act.
(2) Deregulation of Small-Sum Remittance Transactions
Article 4 of the amended Act allows EPIs to handle small-sum remittance transactions, and to engage in foreign currency trades related to electronic payments.
Along with deregulating small-sum remittance transactions, the amended Act also deregulates the types of currency that users can use to make payments. Under amended Article 23, fund transfers between EPIs and “contracted institutions” (that is, stores offering goods and services) must be made in New Taiwan (TWD) dollars, but consumers are allowed to make payments in Taiwan using TWD or foreign currency. Thus, consumers will now be able to use electronic payment platforms to obtain small sums of foreign currency and use foreign currencies to make electronic payments in and from Taiwan.
(3) Stored Value Cards and Electronic Wallets
In the past, stored value cards invariably took the form of physical instruments. In another step in the direction of virtual-physical integration, the amended Act allows EPIs to operate stored value business with or without the use of physical cards.
(4) Facilitation of Points and Coupons Systems
Now, in addition to providing stores with payment services, EPIs will also be able to help stores build loyalty point and coupon systems. This will give EPIs more room to diversify their business models and explore potential-rich niches in the e-payment sector. We can foresee consumers soon enjoying the benefits of loyalty point and coupon systems offered by stores through e-payment systems.
(5) Expanded Scope of Financial Goods and Services for Which EPIs May Handle Payments
Under Article 4 of the pre-amendment Act, an EPI’s operations of collecting and making payments for actual transactions as an agent may not involve any financial products or services except ones for which the FSC expressly allows agents to handle such operations. The FSC has previously issued orders announcing the types of financial products and services for which EPIs may act as collection and payment agents. However, this “positive list” approach has proven insufficiently flexible in keeping up with rapid advances in financial technology (“fintech”).
The current amendment moves the relevant provisions to Article 6 and deletes the requirement of express approval by the FSC. It does away with the “positive list” and allows EPIs to handle payments for any type of financial product or service for which payment through an agent is not expressly prohibited by law or regulation. This development will greatly increase EPIs’ flexibility and adaptability in the fintech industry and will contribute positively to the development of fintech in Taiwan. Under the new “negative list” regulatory framework, however, EPIs will need to be especially attentive to whether any financial product or service for which they intend to act as payment agent falls in a category prohibited by law or regulation.
3. The Amended Act Enhances Regulatory Supervision
While allowing greater flexibility in the e-payment business, the amended Act also beefs up supervision under the existing regulatory framework. For example, it adopts a differential approach to the minimum paid-in capital requirement, basing it on the scope of business operated by an EPI. The requirement is now set as follows: TWD $100 million for an EPI that operates only the business of collecting and making payments for actual transactions as an agent; TWD $300 million for an EPI that additionally engages in the business of receiving stored funds; TWD $500 million for an EPI that, in addition to both the above, also engages in domestic and foreign small remittance business.
The amended Act also introduces provisions aimed at preventing money laundering and crime. For example, Article 25 requires EPIs to implement identity verification mechanisms for users and contracted institutions and for their beneficial owners using a risk-based approach. Article 36 authorizes the FSC to prescribe rules for the handling of irregular or suspicious transactions.
4. The Amended Act Allows Non-EPIs to Operate Small Remittance Services for Migrant Workers
The amendment has received considerable attention for its opening up of services for handling foreign remittances in small amounts for migrant workers. Operators of these services will not be limited to EPIs only. Under Article 4, paragraph 3 of the amended Act, non-EPIs also may operate foreign small remittance services after obtaining approval from the FSC. The amended Act authorizes the FSC, in consultation with the Central Bank and the Ministry of Labor, to prescribe regulations governing various aspects of these services.
The deregulation of this small remittance business comes in response to an experiment under the Financial Technology Development and Innovative Experimentation Act (Taiwan’s regulatory sandbox law). In the future, any applicant, including a non-EPI, that meets the requirements of the applicable administrative regulations will be allowed to operate these services, which have long been in high demand. The availability of these services will advance the cause of inclusive financing and help protect the interests of migrant workers. The related administrative regulations have not yet been issued, however. Future developments in the supervision and regulation of remittances by migrant workers deserve our ongoing attention.
Some Things to Keep an Eye on After the Implementation of the Amended Act
The amendment to the Electronic Payment Act integrates the electronic stored value card and electronic payment regimes and gives EPIs clearer and more uniform standards for legal compliance. It also expands the scope and flexibility of electronic payment business, giving EPIs greater room to develop and innovate. With these developments, and corresponding adjustments to related supervisory regulations, we can anticipate that consumers will soon enjoy a wider selection of electronic payment platforms and more convenient and fast financial services facilitated by electronic payment mechanisms.
Numerous issues merit continued observation in connection with the amended Act. For example, Article 16, paragraph 1 authorizes the FSC to prescribe the amount of small remittances that EPIs will be allowed to handle. The amount that the FSC ultimately decides to allow will have a crucial bearing on the convenience and availability of this service for consumers and will impact the development of related business.
Also, because of concerns relating to financial institution stability and prevention of money laundering, the remittance business in principle has always been reserved for operation by banks under a high degree of regulatory oversight. The amended Act’s deregulation of the small remittance business by EPIs may be based on a recognition that EPIs, by the nature of their business, already have technology and experience handling fund flows, and so are equipped to handle remittances at reasonable scale. However, the amended Act also allows non-EPIs to operate small remittance businesses, with oversight based on administrative regulations prescribed by the competent authority rather than by the Electronic Payment Act.
This raises possible concerns about the stringency and robustness of these regulations. Given the vast numbers of migrant workers currently residing in Taiwan (approximately 700,000 in early 2021), though the typical amounts of individual remittances by these workers may be modest, the overall demand for remittance services and the total amount of resulting fund flows will be enormous. At a time when Taiwan has actively been following the worldwide trend to strengthen anti-money laundering and enhance related legislation, it will be worth watching whether the use of administrative regulations (rather than primary legislation) can suffice to adequately regulate the massive fund flows from migrant worker remittances. Also worth watching will be whether the eligibility requirements that the FSC imposes on businesses wishing to handle these remittance services can adequately protect the interests of migrant workers and ensure the reliability of remittance operations and the avoidance of money laundering.
For more information on electronic payments in Taiwan, please contact Christine Chen at firstname.lastname@example.org.Written June 18, 2021 By Christine Chen, Yi-Kai Chen.