Taiwan's introduction of a regulation, which is meant to ensure service providers fulfill their end of the deal, is the first of its kind around the world in regulating the group buying industry.
The group buying market in Taiwan, which includes Groupon, JigoCity, and a host of other enterprises, is expected to grow from over NT$7 billion (US$243.90 million) in 2010 to nearly NT$9 billion this year, according to the Market Intelligence & Consulting Institute.
However, Chen Shih-chin, an official of the country's Consumer Protection Commission, said comprehensive oversight for this emerging industry has not yet been established, until now.
A survey by the Consumers' Foundation published in March on vouchers of services sold by group buying websites found that more than 80 percent of these vouchers did not clearly list the issuers and over 60 percent failed to include a guarantee of contract.
With its June 10 notification to acquiring banks, which receive and process credit card transactions from merchants, the Financial Supervisory Commission (FSC) caught the market off guard by requiring banks to only deal with group buying companies that have set up an account for the guarantee of contract.
As a result of the measure, payment for vouchers or products will be deposited in a bank account of the group buying firm, and will not be handed over to merchants until consumers use the vouchers or receive the products.
"To our head office's surprise, the Taiwanese government became the first to get involved, even though China has so many scam victims and a lot of disputes were reported in the United States," said Tina Cheng, CEO of Greater China at JigoCity, a website of discounted vouchers and products founded by American entrepreneurs.
While the FSC's measures are expected to impact smaller companies who hope to make quick profits with a few popular products, these firms already face the challenge of growing marketing costs spent to make themselves stand out from rivals.
Cheng added that online shopping sites, such as PChome, are potential rivals that may set foot into the group buying business because they have the advantage of a pool of merchants to partner up with and provide discounts.
Since demand for such discounted services and products are set to remain, diversification has become the solution for companies to survive in the increasingly tough market, said Sky Ho, chief executive of iPeen, a consumer review website that also offers discount coupons.
Internet observer Jeremy Chen said one way to lower the impact of the FSC's measures is to increase the portion of revenues coming from physical products.
Meanwhile, Gomaji, another group buying website, has published a magazine, with 20,000 copies per issue, to tap into revenues of advertising in print media.
As to whether the FSC's measure will have positive or negative impacts on the industry , Cheng said the next six months will be the crucial period to observe the effect. (Business Weekly 1231)(translated by Kay Liu)