The competition for market share for mobile-wallet business is intensifying as consumers increasingly settle transactions with their smartphones.

Taiwan’s convenience stores have always lived up to their name – with one exception. They refuse to take most debit or credit cards. Besides cash, for years the only way to pay at a convenience store was the stored-value EasyCard.

Today the convenience stores still won’t take credit cards, but they do increasingly welcome mobile payments. Digital wallets from Apple Pay and Google Pay to homegrown JKoPay and Japan’s LinePay are now widely accepted at the major convenience-store chains. Consumers pay for a transaction either by swiping their phones over a contactless terminal or scanning a QR code provided by the merchant.

Mobile-payment transactions reached NT$47.8 billion in 2018, more than a threefold spike over NT$14.8 billion a year earlier, according to Financial Supervisory Commission data. Analysts attribute the steep increase to changing consumer behavior – especially a growing ease with mobile banking – plus aggressive promotion by digital wallet providers and government support for mobile payments.

The government has set a goal of 90% mobile-payment penetration by 2025, an ambitious target given that the rate in early 2018 was just 13%.

Making mobile payments ubiquitous is “critical to developing a digital economy,” former Premier Lai Ching-te said just before leaving office earlier this year. 

“By both meeting the needs of society and helping expand the scope of e-commerce applications domestically, mobile payments carry great significance for Taiwan’s emergence as a smart digital nation,” Lai added.

To persuade small businesses – those with sales of less than NT$200,000 a month – to accept mobile payments, the government is providing a tax incentive. Small businesses can continue paying just 1% in business tax until the end of 2020 even if their revenue grows, provided that they offer mobile payments options to customers. Under ordinary circumstances, if revenue increased to more than NT$200,000 monthly, the small businesses would need to pay a 5% tax rate. The government estimates that 400,000 small businesses will benefit from the program.

Mobile payment in Taiwan is becoming more popular in a variety of channels that used to have low adoption rates, notes Robin Hu, a senior industry analyst at the semi-governmental Market Intelligence & Consulting Institute (MIC). The use of mobile payment in convenience stores jumped to 75.6% of transactions in 2018 from 62.3% a year earlier, MIC found.

In supermarkets, the rate rose to 42.5% last year from 32.3% in 2017. In online sales, the frequency of usage nearly doubled to 36.2% in 2018 from 19.8% the previous year.

Contactless point-of-sale terminals have been another factor facilitating mobile-payment adoption in Taiwan. According to credit-card giant Visa, such terminals account for 62% of the acceptance points in Taiwan, more than in Singapore (57%) and Hong Kong (39%). 

“Contactless payments continue to be an integral part of the Taiwanese way of life, which makes going cashless easier and supports the government’s national agenda to expand digital payments,” says Marco Ma, general manager of Visa Taiwan.

A total of 74% of Taiwanese want to see more retailers accept contactless payments, according to a Visa survey published in September 2018. The recent launches of contactless payments for smartphones and fitness wearables have increased the popularity of “tap and pay,” the survey found.

Use of the EMV (Europay MasterCard Visa) standard QR code is also helping to boost mobile payment adoption in Taiwan, Ma says, referring to the global standard for payment cards that ensures interoperability between all cards and acceptance networks. “QR code is a cost-effective and secure alternative to POS terminals and better suits small merchants who aren’t currently offering digital payments,” he says.

Visa launched the EMV QR Code in Taiwan in November 2018, focusing on merchants who traditionally favor cash. It is working with Taishin Bank, Bank Sinopac, Standard Chartered Bank, Hua Nan Bank, and Mega Bank, as well as the Taiwan Mobile Pay wallet, to facilitate digital payment adoption by wet-market stalls, taxis, vending machines, and retail stores in Ximending and on Yongkang Street, Ma says.

A three-horse race

While Taiwan’s mobile-payments market remains fragmented, three digital-wallet services together hold more than 60% of the market: Line Pay, Apple Pay, and JKoPay. As of January 2019, Line was still No. 1 with a 22% market share, while Apple Pay and JKoPay each had almost 20%, according to MIC.

But JKoPay’s popularity is growing faster than the other two. In the past year, it has almost doubled its share of Taiwan’s mobile-payments market, while Line lost 3% and Apple gained just 2%.

JKoPay has used a unique strategy to build scale, analysts say. Compared to Apple and Line, it has focused much more on Taiwan’s small merchants, notes Jaclyn Tsai, chairwoman of the Taiwan Fintech Association.

“JKoPay has done a good job of tying itself in with the daily lives of Taiwanese,” she says. “For small everyday transactions like breakfast or snacks at the night market, it’s the go-to mobile payment provider.”

JKoPay has used a variety of incentives to build its user base. For instance, the company offers users free tokens that subsidize up to 20% of a given transaction, says Ken Chen, co-founder and chief marketing officer of iCHEF, a Taiwan-based restaurant POS system.

In addition, the company incentivizes merchants by offering their customers discounts if they pay with JKoPay. And it helps the shops with online promotion and the sharing of location notification – tasks that small mom-and-pop stores usually aren’t well-equipped to handle themselves.

“By integrating a bank account with its payment-service platform, JKoPay is able to lower costs incurred from handling fees and consistently offer preferential discounts,” says MIC’s Hu.

Critically, JKoPay is able to persuade small merchants – who have traditionally handled transactions only in cash – that it’s in their interest to accept JKoPay. “Small merchants are signing on with JKoPay because they feel that it’s helping them drive business in a way they couldn’t by themselves,” iCHEF’s Chen says.

Line Pay has used a very different strategy than JKoPay to develop its digital-wallet business here, focusing more on tie-ups with financial-services incumbents and big retail outlets. MIC’s Hu attributes Line Pay’s success to its massive user base of 19 million people – about 80% of the Taiwanese population – as well as its launch of credit cards, co-branded with banks, which offer users “attractive discounts” on purchases.

Line’s large user base “facilitates cooperation with channel operators and gives Line an advantage” in the mobile-payments market, Hu says. “Every Line user is a potential Line Pay user.”

Line’s co-branded credit card with CTBC Bank, launched in 2016, has been a big hit. The card is considered a mobile payment because it is tied in with the Line app on smartphones. Initially, cardholders received three Line Pay credit points (with each point equivalent to NT$1) for every NT$100 spent, although CTBC has since reduced that to just 1 credit point. From December 2016 to September 2018, CTBC reportedly issued 1.83 million of the cards, making it the bank’s most popular credit card.

However, subsidizing users’ purchases so heavily may not be a feasible long-term strategy, hence the bank’s scaling back of credit points. CTBC’s fee income declined in the third quarter of 2018 because of the high cost of the rewards program, media reports have said.

With their high profiles, Line Pay and JKoPay are the most visible of Taiwan’s digital wallets, but Apple Pay still commands an almost 20% market share. Analysts say that Apple benefits from the high penetration of Apple products in Taiwan and the iconic tech giant’s strong brand cachet here. Apple is currently the top smartphone seller in the Taiwan market, with an almost 25% market share, according to German research firm GFK.

iCHEF’s Chen says that Apple Pay is handy for online transactions but doesn’t incentivize its users to make offline purchases with the platform.

Still, Apple Pay does offer a “smooth user experience” and benefits from the “aggressive promotions of its bank partners,” says MIC’s Hu.

Analysts expect that Taiwan’s mobile payments market will continue to develop steadily in the coming years, as both consumer and merchant acceptance is rising, while the government has been supportive. Over the long term, consolidation is expected to ease the market fragmentation problem, says MIC’s Hu.

Besides market leaders Line Pay, Apple Pay, and JKoPay, other major digital wallets in Taiwan include Google Pay, Android Pay, Samsung Pay, and the government-backed Taiwan Pay.

Hu notes that fierce market competition is resulting in new demographics embracing mobile wallets. Mobile-payment providers are expanding beyond their traditional customer base of adults aged 26-55 to younger adults aged 18-25, and even older adults, he says.

Still, some small businesses remain resistant to non-cash payments. In recent weeks, Taiwan Business TOPICS visited several retail outlets that ostensibly accept credit cards and mobile payments, only to discover that cash was required to purchase specific items.

At an outlet of the Mama How baby goods store, a clerk insisted that only cash could be used to purchase certain diapers. The clerk said that by accepting only cash for the product, the store could offer a lower price to consumers. Similarly, at the 29.com Wine Cellar, some champagne was cash-only. The staff members said that because the price was a special offer, transactions had to be settled in cash.

Taxis are another problem area. Drivers are often reluctant to accept digital payments, sometimes claiming that their POS machines are out of order.

Charles Wei, a taxi driver in Taipei City, says  it takes five days for him to get paid for a fare settled with JKoPay, a delay he finds irritating.

“Of course, most drivers prefer cash,” he says. “It’s just easier.”