Thailand moves forward on digital banking

Written by Kapronasia || March 11 2024

Throughout Asia, most countries have introduced digital banks in some form, either to increase market competition, boost financial inclusion or both. Thailand is an exception. It has approached digital banking with a marked lack of urgency, with the Bank of Thailand (BoT) mulling the idea for several years before in Jan. 2023 stating that it would allow digital banks by 2025. In a March 5 announcement, the Kingdom’s Finance Ministry said that Thailand will accept applications for virtual banks within the next six months with the goal of supporting people with no or limited access to financial services.

One reason we believe Thailand has approached digital banks at a leisurely pace is that it is a middle-income country in which more than 80% of the population has a bank account. If we include the so-called “underbanked” population, the potential market for online banks is larger, but just how large is a matter of opinion. In 2022, Macquarie estimated that 63% of Thailand’s 71.6 million people are either unbanked or underbanked.

That said, one can argue that Thailand’s population has a strong interest in digital banking, even if many of them already have access to adequate financial services. Visa’s Consumer Payments Attitude study published in March 2023, found that nine in ten Thai consumers (90%), consisting mostly of Gen Y, Gen X and “mass segments,” are interested in virtual banking. According to the study, Thais are most interested in virtual banking to be able to make deposits and withdrawals (72%), transfer money to family and friends (67%), and pay bills (64%).

However, the study also found what could be interpreted as a warning for those overly bullish on the disruptive potential of digital banks: More than three in five (65%) of the respondents prefer to use a traditional lender as their main bank account due to good service, experience and reliability that these banks provide.

With that in mind, it will be interesting to see how the market reacts to the likely arrival of digital banks spun off from large incumbent lenders and/or tech giants with loyal customer bases and strong brand power. Because of strict capitalization requirements, we do not anticipate any winners of digital banking licenses in Thailand will be startups. Instead, the winners of licenses will likely include a consortium of SCBX-Kakao Bank as well as a Kasikornbank subsidiary.   

Thai regulators have made clear that in a similar vein to their counterparts in the region, they do not seek to promote significant market disruption by introducing digital banks. "It is expected that virtual banks will bring about better customer experience and stimulate a healthy competition in the Thai financial institution system, without posing risks to financial stability or causing harm to depositors and wider consumers," the BOT said in statement.

Applicants for the digital banking licenses can apply between March 20 and September 19. Thereafter, the Finance Ministry and Bank of Thailand will have nine months to review applications. Approved virtual banks will have up to a year to prepare for their respective launches.

With that in mind, Thai digital banks will not go live before 2025 and in some cases maybe even 2026.