StartingOctober 1, 2023, the communications and payment app Line, often used by thepeople of Taiwan, has changed its operator’s name to “LY Corporation.” Afterthat, we will probably see change in the service provider name on LYCorporation’s official websites, including LINE TODAY, LINE FRIENDS, LINE VOOM,LINE Hot Spot, etc. However, one thing that may be overlooked is whether it provides“electronic payment” service or “third-party payment” service, either under theformer 'Line Corporation' or the current 'LY Corporation.

Mostpeople see "LINE Pay" or "Jkopay" as a tool for makingpayments or transferring money to friends, and they may not be aware of whichone is "third-party payment" and which one is "electronic payment",or the difference between the two types of payments. However, there aresignificant differences in the legal regulations for these two types ofpayments.

■The electronic payment industry is an industry requiring special permits supervisedby the Financial Supervisory Commission

Firstof all, the so-called "electronic payment industry” is a permit-requiredindustry, requiring a permit from the FSC. According to Paragraphs 1 and 2 of Article4 of the Act Governing Electronic Payment Institutions, businesses that can beoperated by an "electronic payment institution" include collectingand making payments for real transactions as an agent, receiving stored funds,engaging in domestic and foreign small-amount exchanges, engaging in buying andselling foreign currencies and currencies issued by Mainland China, Hong Kong,or Macao related to the businesses provided in the three preceding items, and associatedand derivative businesses approved by the competent authority. Currently, inaddition to those operating by financial institutions, enterprises specificallyoperates the electronic payment business include Jkopay, iPASS Money, Easy Wallet,icash Pay, All Win+PAY, pxpayplus, GAMAPAY, O’Pay, ezPay, etc.  

On theother hand, according to Article 5 of the Act Governing Electronic PaymentInstitutions and Article 3 of the Regulations Regarding Paragraph 2, Article 5of the Act Governing Electronic Payment Institutions, if the service provider merely“collects and makes payment as an agent” and the total balance of fundscollected/paid as an agent “does not exceed the average daily balance of NT$2billion over a one-year period,” it does not need to obtain a permit from theFSC. This type of “service of collecting and making payment as an agent” is theso-called “third-party payment” service. Since “third-party payment” service isnot a permit-requiring business, it is not supervised by the FSC. It only needsto file a company registration with the Ministry of Economic Affairs to operatea “third-party payment” business. Currently there are more than 6000third-party payment service platforms in Taiwan, including Pi Mobile, PayPal,and LINE Pay, which is provided by the newly-renamed LY Corporation (maybe itwill change its name again in the future).

■A third-party payment business only needs to register its business beforeit can operate

EnforcedSupervision by the Ministry of Digital Affairs

Inshort, "electronic payment institutions" can provide a wider range ofservices, including collecting and making payment, storing funds, fundtransfer, and domestic and foreign small-amount exchange businesses, etc., but theywill be subject to the supervision and financial audit of the FSC, andtherefore, in terms of information security, personal information, moneylaundering prevention, and consumer protection, they are under more legalscrutiny. In contrast, although "third-party payment" businesses canonly “collect and make payment as an agent", and there is an upper limiton the total balance, but since they do not need to obtain the FSC's approval,the financial control and audit they receive are also relatively lessstringent.

Inaddition, third-party payment providers can also cooperate with electronicpayment institutions to provide both "collect and pay" and"store and transfer" functions on their own platforms. For example,LY Corporation has integrated the "store and transfer" function intoits app by acquiring a stake in an electronic payment organization, i.e., iPASSMONEY, to allow users to use LINE Pay to make payments to network stores forpurchasing merchandise (third-party payment), as well as, through iPASS MONEY'selectronic payment service, store value in the app's wallet or transfer moneyto a friend who helped pay for dinner in advance.

Usersusually do not care much about the difference between "electronic payment"and "third-party payment." However, in order to prevent illegal actsby those who have the intention to take advantage of the less-regulatedthird-party payment service (e.g., scammers and counterfeit sellers may signcontracts with third-party payment companies through a large number of fakeaccounts so as to use the process of collecting and making payments to transferthe illegal money layer by layer through "legitimate platforms",creating breakpoints in cash flow and greatly increasing the difficulty ofjudicial investigation), the Ministry of Digital Affairs implemented the "RegulationsGoverning Anti-Money Laundering and Countering the Financing of Terrorism forthe Third-Party Payment Enterprises"  on January 1 this year, providing thatthird-party payment companies should check the identity of sellers, and that aseller's use of the cash flow services provided by the third-party payment companyshould be in compliance with the regulations. At the end of July this year, theMinistry of Digital Affairs also implemented the "Third-Party PaymentService Providers' Service Capacity Registration Mechanism," whichencourages third-party payment service providers to provide their anti-moneylaundering compliance statements for registration, and the Ministry of DigitalAffair's Industrial Development Bureau will assist in connecting them toanti-money laundering related compliance resources and tools. In the future,third-party payment service providers that do not register with the aforementionedcapacity registry may be recognized by banks as high-risk providers for moneylaundering prevention and may face termination of their account services. Theabove regulations on "third-party payment" are being implementedgradually in the hope that they will give the industry flexibility in operationand at the same time take into account the interests of financial consumers andthe security of the financial market as a whole.    

This article was published in the Expert’sCommentary Column of the Commercial Times. https://www.ctee.com.tw/news/20231109700108-431305