April 2022
Elva Chuang and Weke Chen
I. Introduction
(1) With the development of technology and changes in people’s consuming habits in recent years, electronic payment has been growing prosperously around the world. As far as mobile payment is concerned, a survey conducted by the Market Intelligence & Consulting Institute (MIC) of the Institute of Information Industry revealed that the preference for mobile payment grew from 37% in 2020 to 50% in 2021 with the prevalence of mobile payment reaching as high as 69% in 2021, which is almost no different from the 71% prevalence of cash. [1]This apparently shows that the revolution in the payment ecosystem in Taiwan is rapidly progressing.
(2) From a regulatory perspective, the Act Governing Electronic Payment Institutions (hereinafter, the “Act”) was amended in January 2021, and the competent authority promulgated the relevant laws, regulations, and directives in the middle of that year and not only integrated “electronic stored value cards” into the regulatory framework of the Act but also allowed the interoperability of the cash flow services across institutions so that transfers between electronic payment institutions and with any bank accounts are permitted. This has a significant impact on the electronic payment market in Taiwan.
(3) The legal framework for the business related to electronic payment in Taiwan is briefly introduced below.
II. Electronic payment
(1) The business types of electronic payment institutions regulated by the Act and the competent authority under this Act
(i) The competent authority under the Act is the Financial Supervisory Commission (hereinafter, the “FSC”) (Article 2 of the Act).
(ii) The business types of electronic payment institutions regulated under the Act includes “collecting and making payments for real transactions as an agent,” “receiving stored funds,” “engaging in domestic and foreign small-amount remittances business,” “engaging in buying and selling foreign currencies related to the three aforementioned types of business,” and other associated and derived business items (Article 4, Paragraphs 1 and 2 of the Act). The definitions and scopes of various types of business are respectively discussed below:
1. Collecting and making payments for real transactions as an agent: the business handled by an electronic payment institution to transfer the payment for a substantive transaction[2] from the paying party to the receiving party after specific terms are satisfied, a specific period has expired, or the paying party has given the instruction (Article 3, Paragraph 1, Subparagraph 6 and Article 4, Paragraph 1, Subparagraph 1 of the Act).
2. Receiving stored funds: the business handled by an electronic payment institution to accept a specific amount of payment[3] deposited by a paying party in advance and use an electronic payment account or a stored value card for multiple payment purposes (Article 3, Paragraph 1, Subparagraph 7 and Article 4, Paragraph 1, Subparagraph 2 of the Act).
3. Engaging in domestic and foreign small-amount remittances business: the business handled by an electronic payment institution to transfer funds below a specific amount[4] via an electronic payment account or a stored value card, and the payment instruction from the paying party is not based on a substantive transaction (Article 3, Paragraph 1, Subparagraph 8 and Article 4, Paragraph 1, Subparagraph 3 of the Act).
4. Engaging in buying and selling foreign currencies related to the three aforementioned types of businesses (Including foreign currencies and currencies issued by mainland China, Hong Kong, or Macao) (Article 4, Paragraph 1, Subparagraph 4 of the Act)
5. Operate inter-institution funds transfer clearing services: the interoperability of cash flow services between different institutions so that the funds can be mutually transferred between different electronic payment institutions (Article 8, Paragraph 1 of the Act).
6. Other associated and derived business: for example, of providing information communication between users or between a user and a contracted institution, an electronic invoice system, and related value-added services (Article 4, Paragraph 2, Subparagraphs 1 through 9 of the Act).
(2) Prior approval of the competent authority required for an enterprise to operate the business of an electronic payment institution
(i) Since the business of receiving stored value payments is like to absorb public funds in advance, not to mention the characteristic that fund transferring between electronic payment accounts are not based on real transactions, the FSC deem the electronic payment business as financial business that requires special approval. Except for banks and Chunghwa Post Co. , Ltd. , those who intend to operate the business of an electronic payment institution (including domestic and offshore entities) are required to apply for special approval of their specialized operation of the aforementioned businesses, apply to the FSC for a business license within six months upon receipt of the special approval, and commence operation within six months upon the FSC’s issuance of the business license. The business items operated by an electronic payment institution shall be specified in the business license by the FSC (Articles 10, 11, 13, and 15 of the Act).
(ii) The enterprise applies for approval to operate business of an electronic payment institution shall meet the following statutory conditions:
1. An enterprise operating the business of an electronic payment institution shall be organized as a company limited by shares (Article 7 of the Act).
2. The paid-in capital requirement varies by the business items an enterprise seeks to operate (Article 9 of the Act):
a. if the enterprise operates only the collection and make of payments for real transactions as an agent : NT$100 million;
b. if the enterprise operates only the collection and make of payments for real transactions as an agent and the business of receiving stored funds: NT$300 million;
c. A minimum paid-in capital of NT$500 million for all the other circumstances.
(3) Important provisions on the safeguard of consumer rights and interests under the Act
(i) An electronic payment institution shall engage in payment transfer operation based on the prior agreement with the user or an instant approval of the user and shall not delay the payment or accept a third-party’s request to stop the payment (Article 18 of the Act).
(ii) A specialized electronic payment institution shall deposit a sufficient amount of reserve for the stored funds received (Article 20 of the Act).
(iii) A specialized electronic payment institution shall declare trust in full or obtain full guarantee from a bank for the user’s stored funds and funds collected/paid as an agent. Additionally, the stored funds shall deduct the amount of required reserves. (Article 21, Paragraph 1 of the Act).
(iv) In principle, payments can only be used for dedicated purposes by specialized electronic payment institutions[5] (Article 22, Paragraphs 1 and 2 of the Act).
(v) The terms and conditions of the standard contract prepared by an electronic payment institution for its electronic payment business and the protections for consumer rights and interests provided in the standard contract shall not be less than those contained in template of standard form contract for electronic payment business prescribed by the competent authority. (Article 30 of the Act).
(vi) Electronic payment institutions shall contribute funds to establish a sinking fund (Articles 41 and 42 of the Act).
(4) Liability for operating electronic payment business without obtaining the approval
(i) An enterprise that fails to apply to the FSC for approval or has applied unsuccessfully to the FSC before operating the business of collecting and making payments for real transactions for users will be penalized with imprisonment of up to five years, and a fine of up to NT$100 million may also be imposed (Article 46, Paragraph 2 of the Act). If the legal representatives, agents, employees, or other practitioners of a juristic person commit the offenses mentioned above in the discharge of their business, the juristic person shall also be fined (Article 46, Paragraphs 3 and of the Act).
(ii) A non-electronic payment institution that operates the business of receiving stored funds shall be penalized with imprisonment of 3 to 10 years, and a fine of NT$20 million to NT$500 million may also be imposed. (Article 46, Paragraph 1 of the Act) If the legal representatives, agents, employees, or other practitioners of a juristic person commit the offenses mentioned above in the discharge of their business, the juristic person shall also be fined (Article 46, Paragraphs 3 and of the Act).
(iii) An enterprise that fails to apply to the FSC for approval or has applied unsuccessfully to the FSC before operating domestic or foreign small-amount remittances shall be penalized with imprisonment of 3 to 10 years, and a criminal fine of NT$10 million to NT$200 million may also be imposed. If asset or property gain from the criminal offense exceeds NT$100 million, the offender is also subject to an aggravated punishment. If a juristic person commits the crime, its responsible person shall be penalized (Article 29, Paragraph 1 and Article 125, Paragraphs 1 and 3 of the Banking Act of The Republic of China).
(iv) An enterprise who engages in foreign exchange transactions as its regular business without applying to the FSC for approval shall be subject to a prison term or detention of up to three years, and/or a fine that amounts to their total business turnover; the foreign exchange and the payment or proceeds thereof shall be confiscated as well. In case the representative of a juristic person, the agent of a juristic person or a natural person, the employee or business associate of a juristic person in other capacity violates the provision stipulated in the preceding paragraph while conducting business, the juristic person or natural person shall be fined in the same amount as imposed on the offender (Article 22, Paragraphs 1 and 2 of the Foreign Exchange Regulation Act).
III. Third-party payment
(1) The meaning of third-party payment business
(i)Definition
A third-party payment enterprise refers to an operator that sets up and provides an Internet platform for online transaction consumers to conduct online payment activities.[6] A third-party payment service refers to the service through which a third-party payment enterprise receives payments of online transactions after it has taken place and then forwards payments to the recipient at the consumer’s instruction.[7]
(ii) Differences from the business of collecting and making payments for real transactions as an agent as regulated by the Act
1. The third-party payment business refers to the business operated by an enterprise to collect and make payments for real transactions as an agent with the total balance of the real transaction payment collected and made under its custody running below NT$2 billion.
2. If the total balance of the payment under the custody of an enterprise that collects and makes payments for real transactions as an agent equals to or exceeds NT$2 billion, the enterprise shall apply to the competent authority (FSC) under the Act for electronic payment institution approval within six months (Article 5, Paragraph 3 and 46, Paragraph 2 of the Act).
(iii) If the total balance of the real transaction payments collected and made as an agent in the operation of third-party payment enterprise is less than NT$2 billion, this is not the regulatory target of the Act, and the competent authority is the Ministry of Economic Affairs. The regulations primarily applicable to third-party payment enterprises include:
1. Regulations under the Matters to be Included and Excluded in the Online Transaction Standard Form Contract for Third-party Payment Services; and
2. If such a third-party payment enterprise has signed a contract with a credit card acquirer as a merchant, there is also a self-regulatory regulation, which is the Self-Regulatory Regulation for “Platform Enterprises Providing Collecting and Making Payment Services” and Contracting with Credit Card Acquirers as Merchants.
(2) Requirements for third-party payment enterprises under existing laws
Under Taiwan law, there is no restriction on the specialized operation of third-party payment enterprises and no requirements for minimum paid-in capital. However, under the Matters to be Included and Excluded in the Online Transaction Standard Form Contract for Third-party Payment Services, an enterprise is still required to provide sufficient performance guarantee for the consumers’ payments or deposit dedicated funds in a dedicated trust account for exclusive use, and shall conduct a consumer identity verification procedure to avoid inappropriate embezzlement of the funds (Points 6 and 7 of the Matters to be Included and Excluded in the Online Transaction Standard Form Contract for Third-party Payment Services). If an enterprise violates the above requirements, the competent authority, which is the Ministry of Economic Affairs, may order rectification within a specified period. If no rectification is made within the period, a fine of NT$30,000 to NT$300,000 will be imposed. If an order is issued again to demand rectification within a specified period but no rectification is made within the period, a fine of NT$50,000 to NT$500,000 will be imposed. A fine may also be imposed upon each instance (Article 56-1 of the Consumer Protections Act).
IV. Conclusion
As previously stated, the payment market in Taiwan is currently regulated in a dualistic manner. Businesses that engage in the collecting and making of payments for real transactions as an agent (with a total balance of NT$2 billion or more in their custody), receiving stored funds, engaging in domestic and foreign small-amount remittances business, and engaging in buying and selling foreign currencies related the aforementioned three types of business should be regulated by the Act. If only the collection and make of payments for real transactions are operated (with the total balance under the custody of the enterprise running below NT$2 billion), the operators are classified as third-party payment enterprises and fall within the jurisdiction of the Ministry of Economic Affairs. In view of the rapid development of technology, the regulations of electronic payment and third-party payment in Taiwan are still under development. Therefore, enterprises are advised to always pay attention to the future development of the payment business in Taiwan in terms of practice or legal regime, and always adjust the content of their business in order to react to the changes of laws and regulations.
(The authors’ opinions do not represent the position of this law firm.)
[1] “Mobile Payment Survey Series I” Mobile Payment’s preference reached 50% with almost 70% prevalence, which is a new high, and almost 60% of the consumers increased the use of mobile payment during the pandemic; https://mic.iii.org.tw/news.aspx?id=617, last viewed on March 19, 2022
[2] The “transaction limits” for an electronic payment institution collecting and making real transaction payments for users are set by the competent authority in consultation with the Central Bank in the Regulations Governing Identity Verification Mechanism and Transaction Limits for Electronic Payment Institutions (Article 16, Paragraph 2 of the Act in the case of specialized institutions and Article 42 of the Act, to which Article 16, Paragraph 2 applies mutatis mutandis, in the case of concurrent institutions). For example, the monthly cumulative amounts of collection and payment for a Type II electronic payment account are respectively capped at an amount equivalent to NT$300,000.
[3] The “specific amount” received by an electronic payment institution for the stored funds from each user is set by the competent authority in consultation with the Central Bank in the Regulations Governing Identity Verification Mechanism and Transaction Limits for Electronic Payment Institutions (Article 16, Paragraph 1 of the Act in the case of specialized institutions and Article 42 of the Act, to which Article 16, Paragraph 1 applies mutatis mutandis, in the case of concurrent institutions). For example, the stored funds balance received for a Type II electronic payment account is capped an amount equivalent to NT$50,000.
[4] The “specific amount” of the domestic and foreign small amount remittances handled by an electronic payment institution for each user, as stated in Footnote 3 above, is set by the competent authority in consultation with the Central Bank in the Regulations Governing Identity Verification Mechanism and Transaction Limits for Electronic Payment Institutions (Article 16, Paragraph 1 of the Act in the case of specialized institutions and Article 42 of the Act, to which Article 16, Paragraph 1 applies mutatis mutandis, in the case of concurrent institutions). For example, the amount of each domestic and foreign small amount remittance via a Type II electronic payment account is capped at an amount equivalent to NT$50,000.
[5] A specialized electronic payment institution may draw or instruct the financial institution at which it opens its dedicated deposit account to draw on the funds received from users, in any of the following circumstances: (1) transfer of funds according to the payment instruction of a user; (2) users withdrawing funds from their payment account or transferring funds to a contracted institution; or (3) to utilize funds received from users in accordance with Paragraph 2 or Paragraph 3 hereof and to disburse or collect interest or other income earned thereof. (Proviso of Article 22, Paragraph 1 of the Act).
For payments, a specialized electronic payment institution may utilize it or instruct the financial institution at which it opens its dedicated deposit account to utilize it up to a certain percentage in any of the following manners (such percentage is set at 80% pursuant to Article 2, Paragraph 2 of the Regulations Governing the Matters Authorized under Article 22, Paragraph 5 of the Act for the Administration of Electronic Payment Institutions): (1) deposit it in banks; (2) purchase government bonds; (3) purchase treasury bills or negotiable certificates of deposit; or (4) purchase other financial products approved by the competent authority. (Proviso of Article 22, Paragraph 2 of the Act).
[6] Matters to be Included and Excluded in the Online Transaction Standard Form Contract for Third-Party Payment Services (1)
[7] Matters to be Included and Excluded in the Online Transaction Standard Form Contract for Third-Party Payment Services (1)