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Finance
From follower to leader: Taiwan’s financial sector accelerates digital transformation
Taiwan is undergoing a financial revolution, surging ahead in digital transformation, propelled by a convergence of global trends and local innovations.
In the past year, Taiwan’s financial services sector has made commendable progress in embracing digital transformation, becoming a cornerstone of the East Asian nation’s fast-expanding digital economy. A convergence of factors — the COVID pandemic’s catalyst effect, the introduction of virtual banks, and regulatory measures — has propelled the sector into a dynamic new phase.
The financial industry is now third among all sectors of Taiwan’s economy in terms of digital transformation, according to IMD’s latest Digital Vortex ranking, up from fifth place in 2023. Surpassed only by the technology and education sectors, this ascent underscores a significant shift in Taiwan’s landscape of digital disruption.
Heat wave on the way to Taiwan?
The latest Digital Vortex ranking positions the financial services industry at an elevated third place among sectors most profoundly impacted by digital disruption, a substantial leap from its fifth-place standing in 2023.
According to the 2023 global Digital Vortex survey, 91% of respondents in the financial services sector anticipate a significant impact from digital disruption, ranging from major to transformative. They expect these changes to accelerate over the next five years.
While this sentiment suggests substantial transformations ahead, Taiwan’s statistics present a distinct outlook. Approximately 48% of financial sector respondents in Taiwan share this anticipation, surpassing other sectors within the country, which record a notably lower figure at 30.05%.
Bridge between awareness and implementation
However, executives in the C-suite of Taiwan’s financial services sector are acutely aware of the challenges presented by digital disruption, reflected in figures showing 90% of Taiwanese executives identify digital disruption as a top organizational priority, closely matching the global average of 87%.
The data underscores the financial services industry’s impressive progress in establishing a cohesive digital strategy, with a noteworthy 55% of Taiwanese firms adopting this approach, significantly surpassing the global average of 30% (refer to Figure 3). This revelation contrasts with previous findings suggesting that Taiwanese firms held lower expectations of a major or transformative impact from digital disruption compared to the global norm. While they may have been more cautious or conservative in their predictions, they have proven themselves capable of effectively adapting to and adopting digital technologies within their operations.
The significant progress in Taiwan’s financial services sector can be credited to a combination of complex factors. The emergence of the COVID-19 pandemic played a crucial role in accelerating the widespread adoption of contactless payments. Before the pandemic, the growth of contactless payments had been slow, but the necessity for such transactions during the pandemic led to a rapid and extensive uptake by both consumers and businesses.
Furthermore, the issuance of three virtual bank licenses contributed to significant market disruption. Although Taiwan’s virtual banks currently hold a market share that doesn’t rival traditional banks, their introduction undeniably accelerated the digital transformation within the conventional banking sector.
The transformative changes in Taiwan’s financial services sector prompted local authorities to enact various policies aimed at addressing cybersecurity and money laundering concerns, thereby advancing the digital transformation of local banks. Notably, financial institutions in Taiwan are now mandated by law to implement structured cybersecurity management plans, and there is proactive encouragement from authorities to facilitate cloud migrations.
Despite these commendable outcomes, it’s imperative to acknowledge the 22% of firms that admitted to lacking a formal digital strategy, a proportion higher than the global average of 16%. This presents a notable risk for these companies, potentially placing them at a disadvantage compared to competitors in an ever-more digitally-focused market.
The 2023 Digital Vortex report highlights a notable discrepancy between Taiwan’s financial services sector and other industries. In a broader sample covering all sectors, a significant 44% of companies either lacked awareness of the significance of digital disruption or failed to respond effectively, signaling a lack of preparedness for the impending wave of digital disruption.
“Approximately 55% of Taiwanese firms in the financial services industry have embraced a well-coordinated digital strategy, significantly outperforming the global average of 30%.”
Moreover, a significant proportion of financial services companies, comprising 40% globally and 48% in Taiwan, have embraced a “follower” approach. This trend implies a strategy of observing and replicating successful innovations from industry pioneers. However, some Taiwanese companies express caution regarding potential risks associated with incorrect actions in digital transformation, which could result in increased costs. This prudent “wait-and-see” approach reflects concerns about the potential pitfalls of hastily adopting innovative strategies.
As Taiwan’s financial services sector undergoes digital transformation, capitalizing on this momentum through the alignment of innovation, strategy, and preparedness will be crucial. The dedication to digital resilience, along with prudent strategies aimed at bridging the gap between awareness and implementation will be essential in securing a competitive advantage in the evolving global financial landscape.
IMD’s Digital Vortex research has shed light on the persistent wave of digital disruption within the financial services sector — a wave that is merely at its inception. This disruption, as outlined by IMD’s Global Center for Digital Business Transformation, encapsulates the influence of emerging digital technologies and pioneering business models on an organization’s value proposition and market standing.
This work follows the previous collaboration between MIC and IMD in “Digital Vortex 2023 Taiwan vs. Global Trends,” as well as IMD’s “Riding the Waves: Navigating the Digital Landscape in Financial Services.” The latter provides invaluable insights into how the global financial services industry has interpreted various digital disruption waves since 2015.
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