Despite the preference of many Thai consumers for bricks-and-mortar banks and teller transactions, mobile penetration and digital uptake are rising sharply, and digital platforms are expected to become the norm in Thailand’s financial services industry. New digital banking tools, such as mobile wallets and online payment platforms, indicate a promising future for digital banking expansion and offer considerable opportunity for banks to bolster revenues, increase client numbers and reduce operating costs. However, timely development of new and innovative digital platforms will be critical given the anticipated surge of financial technology (FinTech) segment products in the Thai market.
Digital Growth
A number of factors are influencing the rise of digital banking in Thailand, not least of which is rising mobile penetration, which jumped from 106.6% in 2010 to 146% in 2015. The Bank of Thailand (BOT) reported that the volume of internet banking transactions grew by 32% between 2010 and 2014, and the volume of mobile banking transactions by 62% during the same period. Despite this growth, uptake of digital banking had been relatively low compared to other Asian nations. In McKinsey and Company’s 2014 “Digital Banking in Asia” report, Thailand was ranked 11th of 13 countries surveyed in terms of digital banking penetration at 19%, ahead of India (18%) and the Philippines (13%), but behind South Korea (96%), China (57%) and Vietnam (44%).
Mobile Banking
More recent surveys have painted a brighter picture, however. In a July 2015 mobile banking report, KPMG found that mobile banking penetration in Thailand was around 43%, while MasterCard’s Mobile Shopping Survey, conducted between October and December 2015, found that 61.1% of consumers in Thailand used a smart-phone to make a purchase, ranking it fourth among 14 Asia-Pacific markets surveyed. Mobile banking appears set to become the dominant method by which digital transactions are made, while online shopping and payments are expected to lead the digital banking transformation. In an October 2015 “Banking Watch” report, BBVA Research Asia found that mobile banking transactions surpassed internet banking transactions during the first half of 2015.
Agenda
Industry stakeholders are now moving to capitalise on existing growth, and streamlined, integrated development of new digital platforms have become a priority for the sector. In January 2016, for example, the Thai Bankers’ Association (TBA) announced it was developing a new five-year strategy emphasising five themes, including digitisation and next-generation payment infrastructure, financial inclusion, contribution to society, regional integration, and legal and regulatory enabling.
Under the digitisation theme, the TBA hopes to facilitate integrated development of next-generation payment infrastructure, with the target of seeing between 50% and 60% of transactions become cashless by 2020 – up from January 2016 levels of 25% – and for electronic payments to comprise between 60% and 70% of the total – up from the current 30%. Three initiatives have been planned to help meet these targets: the development of a payment system roadmap, publication of common standards and establishment of shareable payment infrastructure.
Additionally, individual private banks will play an important role in digitisation, with a number of institutions moving to improve their digital offerings.
Mobile Wallets
Mobile wallets hold particularly high potential for future expansion. A June 2015 study by Accenture found that although Thai banks have intensified their focus on digital banking, most still consider it to be a customer access channel, rather than aiming to provide comprehensive services like deposits, withdrawals and lending. According to the report, evolving customer habits have left 30% of bank revenues “fragile”, meaning banks should increase customer transactions through expansion of convenient digital offerings to shore up revenues. The study recommended banks increase their digital offerings through the introduction of mobile wallets, which enable smaller transactions, after which institutions can introduce more complex products.
IT Overhaul
The transition to digitised service provision will require significant investment of time and capital, as well as investment in new cybersecurity programmes to protect critical data. Indeed, in January 2016 the TBA warned that banks will need to ramp up cybersecurity networks to prevent incidents, such as denial of service attacks, which affected government websites in 2015. Meanwhile, Tokyo-based Trend Micro warned in October 2015 that Thailand is one of the world’s top 10 targets for cyberattacks on online banking and point-of-sale platforms, with 1700 attacks recorded during the first half of 2015. However, a smooth and timely digital transition offers considerable benefits to financial service providers.
Cost Benefits
BBVA Research Asia reported that the majority of banks in Thailand are currently overhauling their IT infrastructure and increasingly using data analytics to enhance customer service in order to become more competitive and boost operational potential. The research firm reports that KB ank is at the forefront of digital transformation in the country after launching its K-Transformation project in 2006. Under the programme, the bank acquired and built unique IT capabilities and created integrated sales and service IT platforms across various business channels. The bank’s new IT capabilities have strengthened financial controls and budgeting capabilities, enhanced sales and service offerings, and shortened product development time, in addition to reducing maintenance and operating costs. According to BBVA, KB ank reduced its cost-income ratio from 45% in 2007 to 42.4% in the first half of 2015. Additionally, it increased average product holdings per customer from 1.7 to 2.9, and return on earnings from 15.9% to 18% during the same period.
Online Payment Platforms
Non-bank institutions have also been rushing to capitalise on rising consumer preferences for digital banking, particularly in the e-commerce segment. In May 2015, for example, Omise – a Thailand-based payment enabler – raised $2.6m in seed funding to develop its payment gateway system. The two-year-old company’s funding was led by Indonesia’s Sinar Mas Digital Ventures, with participation from existing investor East Ventures, start-up fund 500 TukTuks and mobile operator True.
In October 2015 UK-based VocaLink – a payment infrastructure provider – announced it had signed an exclusive letter of intent with Thailand’s National ITMX – an inter-bank payment system provider – to identify options for introducing mobile payments. VocaLink provided technology for the UK Faster Payments Service, which is designed to reduce payment times between different banks’ customer accounts from three days to a few hours, and also developed similar technology for its Immediate Payments Solution, which was launched in Singapore.
Fintech
The rising incidence of non-bank companies capitalising on digital trends could be of concern to existing banks in Thailand. FinTech – technology launched by start-up companies offering cheaper financial services – has already made waves through the launch of businesses and services, such as the cryptocurrency Bitcoin, peer-to-peer lending, and equity crowdfunding. A March 2015 report by Accenture found that global investment in FinTech tripled between 2013 and 2014, rising from $4.05bn to $12.2bn. The consultancy later reported that FinTech investment in the Asia-Pacific region increased in 2015, rising from $880m in 2014 to $3.5bn between January and September in 2015.
Government support for such platforms is strong. In February 2016 Thai financial regulators, including the Securities and Exchange Commission (SEC) and the BOT, moved forward with supporting FinTech initiatives, specifically equity crowdfunding. TechSauce, a Thai start-up website, reported that regulators plan to embrace FinTech, with the BOT, the SEC and the Office of Insurance Commission planning to amend existing regulations and provide channels for new market entrants across the financial services sector.
Careful Investment
The SEC assistant secretary general, Paralee Sukonthaman, told media that investors in early stage companies should be prepared to lose money in the event of failed start-ups, noting that only 20-30% of crowdfunding platforms wind up being successful. As such, the SEC will cap the amount a retail investor may commit to BT50,000 ($1505) in a single start-up, and BT500,000 ($15,050) per year – in addition to a requirement that every investor passes a test proving they understand the risk involved.
Although digital banking is in its early stages, the potential for FinTech initiatives to disrupt traditional banking services is high, making investment in new digital innovation a priority for existing institutions.
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