Under the auspices of Thailand 4.0, which targets economic growth through technology and innovation, the banking industry is slated to undergo major changes. Although banking is not one of Thailand 4.0’s strategic industries, the sector is still expected to benefit from increased deployment of financial technology (fintech).
Digital innovation offers notable potential cost benefits to the sector, and the Bank of Thailand (BOT) has actively sought to promote fintech adoption among traditional banks. In February 2018 Veerathai Santiprabhob, governor of the BOT, announced that the bank is emphasising three guiding principles for fintech development: productivity, immunity and inclusivity.
Productivity improvements will be critical for the ongoing structural transformation of the banking sector, particularly given the rising incidence of disruptive fintech firms impacting the value chains of traditional banks. However, fintech also offers banks valuable opportunities, with new electronic payment systems expected to boost efficiency and cut costs. “Productivity will be a pivotal differentiator over the next few years, and only digitally driven banks will be able to achieve this,” Tan Choon Hin, CEO of United Overseas Bank Thailand, told OBG.
In January 2017 the government announced plans to roll out a national digital payment system that offers lower transaction fees than those currently offered. Although this could impact fee-based income, the Thai Bankers’ Association (TBA) reported in 2017 that commercial banks could save up to BT77bn ($2.2bn) over the next 10 years as the new PromptPay system reduces the use of cash. With PromptPay, transfers of less than BT5000 ($145) will not be charged a fee, while charges for larger transactions will be capped at BT10 ($0.29). In order to retain customers, a number of Thailand’s major banks eliminated their digital transaction fees in March and April 2018. As of April 2018 around 40m people had signed up to PromptPay. Although the new system could cut banks’ fee-based income by up to 5% in the near term, the long-term benefits of fewer cash transactions, such as reduced transport, security and insurance costs, should outweigh the near-term loss of income from fees.
The immunity policy is aimed at protecting the banking sector from external volatility, including geopolitical risks, as well as enhancing cybersecurity and customer protection. Banks can use data from new payment platforms and digital transactions to better understand business conditions and predict consumer credit demand and risks. A range of technologies, including artificial intelligence, biometrics and blockchain, hold considerable potential for the sector.
Banks have already moved to capitalise on blockchain opportunities. In March 2018, 14 banks announced they had partnered to establish the Thailand Blockchain Community Initiative, which will digitise the process of obtaining a letter of guarantee using a shared block-chain platform first launched in July 2017. It will facilitate inter-bank data verification and communication, speeding up the process from days to just 30 minutes.
Efforts to reduce wealth inequality will also benefit from technological advancements, with the BOT identifying fintech such as online banking platforms, smartphone banking, and digital remittance and cross-border transaction platforms as critical to reducing the unbanked population and supporting small and medium-sized enterprises (SMEs). Mobile banking, in particular, is set to expand further, with the total number of mobile banking users jumping from 1.2m at end-2013 to 31.6m at end-2017. In comparison, there were 20.5m internet banking users in 2017.
In May 2018 the National Economic and Social Development Board announced plans to create a big data system connecting government entities, ministries and private sector players. In banking, the new system will be used to gather SME data to facilitate access to credit from state-owned banks, with reduced credit costs expected to translate into lower interest rates.
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