LINE Bank, Next Commercial Bank, and Rakuten Bank have attracted millions of customers, but questions remain about the sustainability of their respective business models.
Nearly five years after the first pure-play digital bank launched in Taiwan, the island nation’s three online-only lenders have yet to carve out a clear market niche. LINE Bank, Rakuten Bank, and Next Commercial Bank, respectively backed by Korean tech giant Naver, Japanese e-commerce firm Rakuten, and Taiwanese Chunghwa Telecom, all remain in the red with insufficient revenue from deposits, lending, and other products to offset their costs.
In a report published in late September, Fitch Ratings stated the obvious: The three digital banks “will rely on shareholder support until they attain sustainable profitability.” The ratings agency was ambiguous about when it expects the online lenders to be profitable, though.
In the first half of the year, LINE Bank, Next Commercial Bank, and Rakuten Bank reported combined losses of NT$8.5 billion — a record high, up 31% from a year earlier.
The fundamentals are challenging for Taiwan’s digital banks, despite their being unencumbered by physical branch costs and having fewer employees than traditional lenders. Initial investment requirements are high. Establishing a secure information technology infrastructure is costly. Customer acquisition costs are also high, given intense competition in Taiwan’s retail banking market. Further, online lenders are struggling to achieve economies of scale.
To a certain extent, these are universal problems for banking startups trying to compete with well-established and deep-pocketed incumbents. But in Taiwan, the market had too many retail banks long before the digital lenders arrived. In a country of 23.5 million people — with a population that is gradually shrinking— there are almost 40 retail banks and more than 3,350 bank branches. Consolidation is rare —entrenched, often family-owned businesses prefer to maintain their autonomy, even if it means limited growth prospects.
“In the face of overbanking, [Taiwan’s] online-only banks must attract customers through cash-burning strategies such as high-interest deposits and generous consumer rewards, directly eroding interest rate spreads,” says Chang Kai-jiun, director of the Financial Research Institute at the Taiwan Academy of Banking and Finance (TABF), a think tank and training center for financial professionals.
Making matters worse, the three digital-only banks — though they have grown their user base and deposits in recent years — still lack the economies of scale needed to cover operating costs, Chang notes.
Intensifying competition
The retail banking sector has from the outset been a tough nut to crack for Taiwan’s digital banks, but it has become even more challenging now that traditional incumbents are entering the market. While Taiwan’s traditional retail banks have long offered online services, an increasing number of them have in recent years established digital subsidiaries or rebranded existing platforms. Facing fewer regulatory hurdles than the pure-play online banks, these incumbents have had no trouble muscling in on their territory — and in many cases, without expending too many resources.
Rich01.com, a Taiwanese website comparing financial products, lists 20 different digital accounts that can be opened with Taiwanese banks. Many incumbent lenders, including Bank of Taiwan, Bank SinoPac, Cathay, Fubon, Huanan, Land Bank of Taiwan, Mega Holdings, and Shanghai Commercial & Savings Bank, are included alongside LINE Bank, Next Commercial Bank, and Rakuten Bank.
Financial Supervisory Commission data shows that by the end of June, Taiwanese commercial banks had 26.49 million digital accounts. Traditional banks accounted for 23.58 million, compared with just 2.91 million at online lenders.
Traditional banks, such as Taishin International Bank’s Richart, have entered the digital banking space with strong customer bases, licenses, and branch support, quickly boosting their market share in digital accounts in Taiwan, notes Alex Chu, a senior industry analyst at the semi-governmental Market Intelligence & Consulting Institute (MIC).
Richart in particular has retained its leadership through product innovation and a refined app experience, achieving profitability. “This shifted the market from a three-player battle among digital-only banks to a broader competitive landscape with multiple banks,” Chu says.
“Richart and other digital offshoots from traditional banks have been a significant drag on the growth of pure-play digital banks,” says Zennon Kapron, director of Singapore-based fintech consultancy GL Insight. He notes that established players bring deep pockets, extensive branch networks (which remain crucial in Taiwan), and regulatory expertise, as well as the ability to cross-sell and underwrite at scale.
These banks are also not starting from scratch. Richart was already live years before the pure-digital banks even received their licenses, Kapron explains. “So while native digital banks like LINE, Rakuten, and Next Bank may be nimbler, they’re playing catch-up against incumbents that are digitizing fast and know the market inside out.”
Chu notes that incumbents have matched the perks offered by the digital banks to attract customers, including high savings rates, free interbank transfers, and cashback rewards. Their efforts have intensified pressure on digital-only banks to acquire customers and generate profits, he says. To stay competitive, digital-only banks must continue innovating, integrating ecosystems, and employing precision marketing to withstand the accelerated digital push from traditional banks, he adds.
Trying to differentiate
Despite intense competition in Taiwan’s banking sector, the three digital banks have their respective strengths. Of the three, LINE Bank is the largest by both customer accounts and revenue. The key lies in its more than 2 million users, which demonstrates higher engagement and customer satisfaction compared to competitors, Chu notes.
Leveraging LINE’s massive social and messaging ecosystem in Taiwan (about 22 million monthly active users), LINE Bank has been able to rapidly build its customer base, especially among younger Taiwanese. It also has differentiated offerings, such as “Friend Accounts,” bill-splitting, group account management, and high-reward LINE Points. “Combined with early investments in big data and AI analytics and strong marketing capabilities, LINE Bank has established clear leadership in user base, market share, and brand influence in Taiwan,” Kapron says.
“The embedded user base of millions from the LINE messaging app gave LINE Bank instant distribution and brand familiarity, something its digital-native rivals simply didn’t have,” he adds. That gave LINE Bank a head start on customer acquisition without needing aggressive incentives.
In addition, “LINE has been smart about targeting everyday banking use cases like microloans, payroll-linked savings, and debit cards with cashback, rather than overpromising on disruptive features,” he says.
For its part, Rakuten Bank draws on over two decades of experience as Japan’s first digital-only bank, focusing on corporate banking and cross-border financial services. “Its deep integration with the Rakuten ecosystem and consumer platforms provides strong, diversified synergies across markets,” Chu says.
Next Bank, supported by heavyweight local shareholders, emphasizes scenario-based finance, technological innovation (such as automated loan approvals and fully digital processes), and cybersecurity resilience. Embedding services into daily life, strengthening local trust, and maintaining lean operations combined with social responsibility has helped Next Bank achieve solid market recognition, Chu says.
Among the three, Rakuten Bank has gone deepest into the red. Its higher losses stem from its lowest deposit-loan ratio and slower loan growth, which limited interest income. At the same time, high capital costs, significant investments in corporate and cross-border financial services, and longer payback cycles have delayed profitability.
In contrast, LINE Bank and Next Bank concentrated on retail and consumer lending, aggressively expanding their loan portfolios and raising their deposit-loan ratios closer to those of traditional banks. This strategy helped improve their profit structures, enhanced cost control, and narrowed losses significantly.
Regulatory easing
Looking ahead, analysts predict that Taiwan’s trio of pure-play digital banks is likely to benefit from regulatory easing, enabling them to offer a wider range of products and services. MIC’s Chu notes that Taiwan’s regulatory relaxation now allows LINE Bank, Next Commercial Bank, and Rakuten Bank to expand beyond consumer finance into corporate banking, offering foreign exchange, fund sales, syndicated loans, and corporate accounts. This diversification enhances capital utilization efficiency, strengthens wealth management and fee-based income, and opens access to SME and institutional markets, he says.
TABF’s Chang notes that in the third quarter of 2024, the FSC announced amendments to the “Standards Governing the Establishment of Securities Investment Consulting Enterprises.” These amendments proposed relaxing the financial requirements for native digital banks to engage in both fund sales and investment advisory services. Regulators have also allowed pure-play online banks to apply for pilot programs in insurance sales and cross-border collaboration. These moves “indicate that the overall policy environment in Taiwan is currently favorable for pure-play online banking operations,” he says.
Chang says the three online lenders must change their business models if they are to turn a profit. He notes that beyond high initial investment requirements and customer acquisition costs, the very nature of the digital banking customer base poses a challenge.
“The market for pure-play online banks is primarily young, digital natives with limited assets and low average account balances, limiting the interest rate spread they can contribute,” he says. Furthermore, these customers often seek out subsidies, flocking to whichever lender offers better rates or rewards. This dynamic leads to relatively weak brand loyalty, complicating long-term customer relationship-building.
Chang further notes that prominent digital banks overseas experienced these challenges but ultimately overcame them. For instance, the UK’s Revolut and Monzo lost money for five to six years as they worked to refine their respective business models. “The current losses faced by pure-play online banks in Taiwan are both a normal phenomenon for banking startups and reflect the need for more precise positioning of their customer base and product strategies,” he says.
At the same time, he notes that LINE Bank, Next Commercial Bank, and Rakuten Bank have also contributed to financial inclusion in Taiwan. For example, many freelancers and small vendors previously struggled to obtain loans from traditional banks due to a lack of stable salary documentation. However, pure-play online banks can leverage their unique technological advantages. By analyzing “alternative data” such as customers’ digital footprints and cash flow, they can develop more flexible credit scoring models, providing access to capital for groups previously overlooked by the financial system.
“This represents not only a business model innovation but also has real societal significance,” Chang says.
