New licenses, new era? A banking revolution brews in Thailand

This story was originally published in The Business Times. It was substantially modified to reflect Tech in Asia’s editorial direction and standards.

Thailand is finally joining the digital bank party.

This month, the Bank of Thailand (BOT) will grant three firms digital banking licenses, spurring competition and innovation in a banking landscape long dominated by legacy players.

While details are scant on what offerings new digital or “virtual” banks will bring to the table in Thailand, they are expected to target “underbanked” customers – those who have access to financial services but choose not to use them.

These are usually lower-income individuals and small and micro businesses, Pornpan Wichawut, head of the fintech practice at Bangkok-based consulting firm Tilleke & Gibbins, tells Tech in Asia.

“Traditional banks have struggled to serve these segments effectively due to legacy systems, high operating costs, and risk-averse lending practices,” she adds.

As of 2020, about 95% of households in Thailand have a deposit account, but only 45% chose to avail of loans, a BOT survey reveals.

Insufficient income and fear of rejection were the primary reasons, the survey found.

Instead, many Thai households choose to tap into “informal” lending facilities, turning to loan sharks, who charge interest rates above the BOT-regulated limit of 25%, a research by think tank Puey Ungphakorn Institute for Economic Research shows.

In the 2022 survey, which covered 4,800 households across all regions in Thailand, it was found that 42% avail of informal loans.

It’s no surprise, then, that among the five consortia that applied for a virtual banking license, the three rumored to get approval are either backed by local conglomerates that have had experience in working with this underserved market or are established fintech players abroad.

Meet the players

Government-owned Krungthai Bank, SCB X (the parent company of Siam Commercial Bank), and CP Group-owned Ascend Money are seen as top contenders.

While all three have not shared specific plans for their ventures, analysts expect them to tap into the strengths of their partners for their offerings.

See also: Singapore’s digital banking battle in 8 chartsFor both SCB X and Ascend Money, complying with regulations, localizing data, and adapting to local consumer behavior will be critical to their product launch, says Wichawut.

Open banking for open data

See also: Big banks, conglomerates rule over Thailand’s fintech mapMaybank Securities estimates that these virtual banks would be projected to spend up to 5.7 billion baht (US$175 million) in just one year to develop their products and services.