Understanding Virtual Banks
The arrival of Virtual Banks promises a new era of banking in Thailand, potentially changing how people interact with financial institutions forever. Let's break down what these banks are and their expected impact.
1. What is a Virtual Bank?
A Virtual Bank, also known as a branchless commercial bank, is a new type of financial institution that operates entirely through digital channels. Essentially, they have no physical branches, ATMs, or CDMs of their own. Despite this, they offer a full suite of financial services comparable to traditional banks.
The Bank of Thailand's (BOT) primary goal in initiating the Virtual Bank policy is to attract technology-savvy companies and those with expertise in digital services and data. By leveraging these strengths, Virtual Banks can offer more efficient digital financial services, reduce operational costs related to staff, buildings, and locations, and better cater to the diverse needs of different customer segments.
2. Thailand's Pioneer Virtual Banks
Recently, the Ministry of Finance and the BOT announced the approved applicants for Virtual Bank licenses. Three major consortiums have been selected:
- Group 1: ACM Holdings Company Limited
- Group 2: Krungthai Bank Public Company Limited, Advanced Info Service Public Company Limited, and PTT Oil and Retail Business Public Company Limited
- Group 3: SCB X Public Company Limited, WeTechnology Limited, and KakaoBank Corp.
#FunFact: ACM Holdings Company Limited is part of the Ascend Money group, the entity behind the widely recognized TrueMoney e-wallet service.
The approved applicants must establish public limited companies, adhere to conditions set by the Minister of Finance, and pass the BOT's readiness assessments before officially applying for their Virtual Bank operating licenses. They are expected to commence operations within one year of the Minister of Finance's endorsement.
3. International Case Studies
While Virtual Banks may seem novel to Thailand, they have been operational in many countries worldwide for some time:
South Korea began issuing digital banking licenses in 2015 to foster competition and innovation in its financial sector. KakaoBank is currently the largest and most prominent player. A standout service is their "26-Week Savings Account," which allows users to set their savings amount and adjust the weekly savings schedule, effectively promoting saving discipline.
China's Virtual Banks primarily aim to serve businesses and individuals with limited access to traditional financial services, often dominated by e-commerce companies. They focus on providing loans to SMEs and individuals who may not qualify for loans from conventional banks, thereby enhancing financial inclusivity.
The UK has actively encouraged Virtual Banks to boost competition in its banking industry. Monzo is a notable example, a branchless bank targeting the younger demographic with a comprehensive range of financial services. Impressively, Monzo operates with just over 1,000 employees, a fraction of the tens of thousands employed by large traditional banks offering similar services, highlighting significant operational cost efficiencies.
4. What Will Thais Gain from Virtual Banks?
The introduction of Virtual Banks is poised to dramatically reshape Thai financial behaviors, making services more accessible, convenient, and user-friendly through digital channels. Key benefits include:
Easier Access to Funding
Individuals in the gig economy or those with fluctuating incomes often face difficulties securing loans due to perceived risk or lack of traditional documentation. Virtual Banks can mitigate this by utilizing alternative data or "digital footprints" for credit assessment. For instance, consistent daily mobile payments or timely utility bill payments can demonstrate financial discipline, making it easier for Virtual Banks to approve loans.
Financial Incentives
To thrive in a competitive market, Virtual Banks will likely offer attractive products and services. This could include higher interest rates on savings accounts. By eliminating the costs associated with physical branches, rent, and large workforces, Virtual Banks can pass these savings on to customers as better returns, encouraging more people to save.
Upskilling the Workforce
Beyond financial inclusion and incentives, Virtual Banks create opportunities for workforce development by demanding new skill sets in areas like Data Science and Software Development. This will push professionals in finance and other sectors to adapt and acquire new competencies.
Challenges and Considerations
While the benefits are significant, the transition to Virtual Banks also presents challenges and requires preparedness from the Thai public. A key consideration is for individuals less familiar with technology, who will need to adapt and learn to use new applications. Furthermore, as all transactions move online, cybersecurity becomes paramount. Increased risks of data theft, fraud, and scams necessitate robust security measures and user vigilance. Consumers must stay informed and cautious to avoid becoming victims.