PwC says the introduction of virtual bank licences will increase competition and spur innovation from new players, accelerating the development of the digital services offered by Thailand's financial institutions.
Bank operators must review the licensing framework and ensure their ecosystem supports cashless payment to meet digital consumer needs, it says.
Vilaiporn Taweelappontong, Consulting Leader, PwC Thailand and Financial Services Strategy and Operations Leader, PwC South East Asia Consulting, said virtual banks' focus on customer-centric services, and improving the speed and efficiency of things like document submission and interactions with customer service agents would help them to gain popularity when the licence is available in Thailand.
"Today's consumers are digitally connected. They have already embraced e-payments for financial transactions by using in-app services such as mobile and QR code payments, and PromptPay," Vilaiporn said.
"Establishing a virtual bank is a logical step to deliver improved services that best meet the demand of customers, as well as encourage traditional banks to adapt to this change," she said.
In January, the Bank of Thailand (BOT) released an announcement on its public hearings about the virtual bank licence framework, and is expected to invite applications for the licence this year. Applicants who are approved by the Minister of Finance will be announced in 2024. This prompts many commercial banks and non-bank financial institutions to show great interest in obtaining the licence.
Vilaiporn pointed out that virtual banks have already been established in South Korea, Hong Kong SAR, Singapore and Malaysia where the central banks have issued virtual bank licences. What's more, the provision of financial services through internet-only channels, and away from physical branches, ATMs and cash deposit machines, aligns with Thailand's goal to create innovative technologies driven by data.
"In the near future, we'll see a highly competitive market as non-banks join the competition, increase partnerships with tech companies and banks expand their digital services to obtain the virtual bank licence. One successful case in Asia is South Korea's KakaoBank that has leveraged its virtual bank to reinvent its chat platform. They offer 24-hour mobile banking services, including account opening, debit card applications, overseas money transfers, loan applications, savings and other services, which have attracted a large number of users," she said.
Preparing for cashless payment ecosystem
Vilaiporn continued by explaining the global financial services industry is undergoing a significant transformation. Digital disruption and the COVID-19 pandemic have both accelerated consumer adoption of digital tech by three to five years. This has led to the rapid rise of e-payments, which is a core driver for change in the financial services industry.
This echoes PwC and Strategy&'s 'Payments 2025 & beyond' report that says global cashless transaction volumes are expected to increase from around 1tn transactions to almost 1.9tn between 2020 and 2025, and to triple by 2030.
"As consumers around the world are turning to e-payments, many countries have already evolved to become cashless societies. And we expect this trend to play an integral role in the digital transformation of Thailand's financial services industry in the coming years. So, it's time for businesses in this sector to assess their entire infrastructure and determine whether it's ready to support the spectrum of digital payments and other business models that will follow," she said.
Asia Pacific's cashless transaction volume surging ahead
PwC and Strategy&'s report also predicts cashless transactions will grow fastest in Asia-Pacific, increasing by 109% from 2020 to 2025, and then by 76% from 2025 to 2030. The pace-setting region is followed by Africa: 78%, 64%, Europe: 64%, 39%, Latin America: 52%, 48%, with North America further behind at 43% and 35%.
The report says this explosive growth is supported by new business models and innovation in many countries, such as China, which has developed 'super apps', like Alipay and WeChat Pay, providing online payment platforms.
More intense competition in Thailand's financial sector
As for the competitive landscape, Vilaiporn said the market will divide into four distinct groups over the next three to five years. The major players in the cashless payment business are expected to comprise banks; peer-to-peer (P2P) payment platforms like PayPal, PromptPay and Venmo; credit card providers; and mobile banking services like Apple Pay, Alipay and Amazon Pay. Moreover, services from non-banks and P2P service providers are growing rapidly.
Meanwhile, competition in e-payment services will intensify as new players enter the market. Non-banks are expected to bring more creative innovation and payment options, which currently includes cash, credit and debit cards, P2P platforms and digital wallet payments.
Vilaiporn added that the business model to establish virtual banks and scope of services - such as deposits, loans, investments and payments - will vary depending on the service provider. It's vital each provider tailors their services to consumer needs by considering five key practices, including:
- Modernising technology and enhancing technological capabilities
- Enhancing innovation capabilities
- Building a compelling value proposition
- Lowering operational costs
- Using data more effectively
"Virtual banks will be important for providing more comprehensive and inclusive financial services alongside other innovations and partnerships that will develop financial infrastructure and platforms such as digital wallets and digital currencies.
"However, service providers shouldn't overlook the risks associated with management and technological vulnerabilities like system crashes. Financial services must invest heavily in data security to limit the risks that will inevitably increase as the volume of digital transactions grows," Vilaiporn warned.
 The Bank of Thailand issues the Consultation Paper on Virtual Bank Licensing Framework, BOT Press Release No. 1/2023
Source: PwC Thailand