Thailand moves closer to the launch of digital-only banks

• Central bank plans to issue up to three virtual banking licences in 2024
• Consultation paper on licensing framework issued
• Financial sector seen to become a leader in transition to digital economy

Thailand is one step closer to the creation of its first digital-only banks. The main thrust of which is to enhance financial inclusion by widening access to banking products and services, including credit and loans, and at the same time drive down the cost of financial services for businesses and individuals.

However, the central bank, Bank of Thailand (BoT) is working at a cautious pace, announcing that only three digital banking licences will be issued next year.

In January 2023, BoT issued a consultation paper on the licensing framework for allowing digital banks to compete in the market. This framework will guide applicants on the requirements for obtaining a digital banking licence in Thailand with BoT expected to grant licences to successful candidates by 2024.

While incumbents have been keeping up with the pace of financial technology, the Thai government also recognises the need for the financial sector to be seen as a leader in the country’s transition to a digital economy.

The consultation paper called for guidelines on achieving a balance between growth and innovation in the finance sector. The policy direction around these goals center on three principles: leveraging technology and data to drive innovation through open competition, infrastructure and data; managing the transition to a digital economy with sustainability in mind; and safeguarding the financial system from emerging risks.

Thailand’s financial services penetration is high at 80% of its 70 million population, but many remain underserved with no proper access to basic savings, payments and credit. If the gap is not bridged, existing structural economic problems such as household debt and inequality will be exacerbated.

With greater clarity on the policy and regulatory framework, the Thai financial services industry will also be able to jump on opportunities in the region. According to the latest e-Conomy Southeast Asia report by Google and Singapore’s national investment company, Temasek, the digital economy in the region is expected to grow more than twice the gross domestic product (GDP) through 2030.

Thailand’s digital economy is forecasted to grow by an average of 15% between 2022 and 2025 and by 13% between 2025 and 2030; GDP is set to grow 7% between 2022 and 2025, and 5% between 2025 and 2030. Its digital economy will reach a gross merchant value of about $35 billion in 2022, $53 billion by 2025 and between $100 and $165 billion in 2030.

Tharith Panpiemras, Assistant Governor of the Financial Institutions Policy Group, Bank of Thailand

BoT’s assistant governor Tharith Panpiemras said that for new players to obtain a licence, they must show a solid business plan. He also acknowledged the need to facilitate open infrastructure and address challenges in sharing data as the government prepares to invite applications.

He said: “They will have to prove to us that they can serve the underserved better than the traditional banks. Also, they must show that they can offer a more seamless experience to the customer. We expect to see them as a bank, not a fintech.”

Challenges in accessing and sharing data

Digital finance leaders also recognise that the ability to connect and collaborate through customer-centric platforms and extract data to deliver personalised experiences is key to achieving a sustainable digital economy.

Innovations from platform players are expected to pose more competitive pressures to incumbents than digital-only or virtual banks perceived to have a narrower scope of functions and operations around the underserved. However, new and small players face challenges in accessing shared data, especially non-bank, alternative data.

Martin Buchholz,
Head of CIMB Thai Digital Bank

Atis Ruchirawat,
Managing Director, General Card Services

Martin Buchholz, head of CIMB Thai Digital Bank commented that CIMB is finding ways to innovate and compete with big players. With a small data base, it looks at getting data from small platform partners or second-tier organisations.

He explained: “We don’t have the budget, so we must make very wise decisions. We must use the data as best we can. We have a problem with data sharing. We can’t get the data, because nobody wants to share data with us.”

Atis Ruchirawat, managing director at General Card Services, said that while they share data with parent firm Ayudhya Bank, consolidation and analysis of data remain a challenge. He agreed with Buchholz, saying: “No one wants to share raw data. Everyone would have their own team to do the data analysis, and then probably package that data. Then those two packages don’t really mix together. We must sit down and discuss—how do we as two common platforms, merge the data into one and then do total targeting based on that data?”

Suporn Sunthornrohit,
Chief Business Innovation Officer, Krungthai Bank

Punpisut Krikul,
Head of innovative credit product, Kasikornbank

Other than consolidation, another challenge for incumbents is how to use data efficiently on mass customisation, seamless payments, lending and investments, said Karin Boonlertvanich, innovation division head at Kasikornbank. He remarked: “It’s not about the amount of data but what we want to use it with. As an incumbent, we also have a lot of problems about data sharing.”

Suporn Sunthornrohit, chief business innovation officer at Krungthai Bank, emphasised that in data, collaboration is a cornerstone. She said: “We always see the banking transaction. We really want to see phone and app usage, or the SKU (stock keeping unit) level of basket that the customer spent; that’s very important.”

Gaps in data make it difficult for traditional banks to assess lending risks for the underserved population, said Punpisut Krikul, head of innovative credit product at Kasikornbank. To expand its lending portfolio and have access to reliable data, it has partnered with e-commerce service providers like Shopee and Lazada.

Krikul said: “It’s very difficult to evaluate risks. Data is very important. We partner with Shopee and Lazada. We use social, merchant and financial data to evaluate, to lend to our customers.” The bank currently provides quick loans to sellers on these platforms.

Balancing customer-centricity and channel economics

With the rise of nimbler and more customer-focused fintechs, balancing customer-centricity and channel economics is another speed bump for incumbents as they respond to customer needs while adjusting their service delivery methods based on what customers prefer.

Even if the future of banking is now skewed towards digital, incumbents in Thailand believe an omnichannel approach is still best for the moment.

Pitiporn Phanaphat,
FEVP, Head of Digital Platforms and Products, Siam Commercial Bank

Rachada Danpongchareon,
Head of Digital Partnership at Siam Commercial Bank

Pitiporn Phanaphat, head of digital platforms and products at Siam Commercial Bank remarked: “We learned that not everything has to be 100% digital. Some high-net-profile customers are still omnichannel, and we must live with that. We move with whatever the customer would be comfortable with.”

For Rachada Danpongchareon, head of Digital Partnership at Siam Commercial Bank, a digital-only approach is not the easiest solution for now when reaching the underserved as there are still roadblocks to digital customer onboarding for this segment.

She said: “It depends on the need of the customers. If they are underserved by the banks then we have to reach them in ways that fit their needs. The challenge is pretty much on how we onboard them on the digital journey with adoption, education or familiarity.”

Karin Boonlertvanich,
EVP, Corporate Strategy and Innovation Division Head, Kasikornbank

Thadpong Pongthawornkamol,
Managing director of Kasikorn Business-Technology Group (KBTG),

Boonlertvanich of Kasikornbank, also pointed out that while it may be easier to obtain financing from platforms, their unguarded expansion through aggressive pricing and quest to enhance valuation could exacerbate household debt and not serve consumers’ long terms interest.

Unlike traditional banks that are properly regulated by the central bank, platforms are accountable primarily to their shareholders and are focused on aggressive customer base expansion. Easy access to unsecured loans can result in higher debt for underserved households.

Boonlertvanich warned: “That may be good for their valuation in the short term, but if they try to make the underbanked customers get easy money, that can lead to disaster for the economy”.

For Thadpong Pongthawornkamol, managing director of Kasikorn Business-Technology Group (KBTG), partnerships rather than competition between fintechs and traditional banks is essential to expanding services for the underserved.

He said: “We don’t see startups and fintechs as competitors. There have been many times when we explore technology with them and find ways to lend in segments we have never touched before.” KBTG is the technology and innovation arm of Kasikornbank.