One would be hard pressed to find any market in East Asia except the Philippines where startups are major digital banking players. In one jurisdiction after the next, regulators have ensured that incumbent lenders and in some cases large technology companies win the requisite licenses to operate online-only banks.
After biding its time on digital banking for several years, Thailand is following in its neighbors’ footsteps, setting capitalization requirements and other hurdles that will likely eliminate scrappy upstarts from the application process. In its own words, the Bank of Thailand (BoT) requires that “major shareholders of the virtual bank must demonstrate the capability and commitment to provide oversight and adequate funding to the virtual bank.” Most startups are unlikely to have adequate funding.
Further, the digital banks will be under strict supervision of the BoT for the first three to five years. This requirement could potentially hobble startups, especially if the BoT finds something objectionable in a business model and orders the digital bank to make changes. However, it will not be a problem for established financial firms and tech giants that have many other revenue sources than their digital banking venture.
For firms that align with the BoT’s requirements, there is a potentially significant market of underbanked individuals and small businesses, though that term is notoriously elastic. Are people unsatisfied with their banking services “underbanked?” Or just those who cannot get approved for certain loans?
That said, Thailand is broadly shifting to digital financial services and there is money to be made by simply by rolling out new services that reflect this reality. With that in mind, several of Thailand’s largest financial firms are preparing to throw their hats in the ring for a digital banking license, including Siam Commercial Bank (SCB) and Kasikornbank.
They have nothing to lose and everything to gain.
SCB’s Digital Ambitions
SCB is well positioned to be a major digital banking player in Thailand. First, it is large and well capitalized. It is Thailand’s No. 4 lender by total assets and the industry leader in wealth management with a total customer base of 400,000 and AUM of 1.6 trillion baht.
Second, it already has a well-established digital presence. 14 million of its 17 million customers use its mobile banking platform SCB Easy. That app ranks among the country’s top 10 apps and the top three for banking in terms in terms of usage. SCB also counts 25 million users of its digital apps and related services.
Third, SCB got a little carried away with digital transformation during the last crypto bull market and almost purchased the Thai crypto exchange Bitkub for 17.8 billion baht. The Thai lender only backed out of the deal after the BoT announced a new rule to limit investment by commercial banks in digital asset businesses at less than 3% of their capital, intended to reduce systemic financial risk. The SCB-Bitkub deal would have exceeded that threshold as it would have required about 5% of SCB’s capital.
Digital banking is a less risky and more straightforward way for SCB to further its digital restructuring than crypto.
KBank’s Online Banking Push
Kasikornbank’s (KBank) digital banking plans are even more ambitious than SCB’s. For several years KBank has been partnering with the Japanese super app Line to offer social banking services in Thailand, a first for the kingdom. Line is the most popular messaging service in Thailand, with more than 50 million users in a population of 71.6 million. Known as Line BK, the two firms’ tie-up offers services like a loan application process that guarantees a decision with 24 hours.
In July 2022, KBank announced a US$2.7 billion strategic program aimed at boosting access to banking services among Thailand’s unbanked and underbanked population, small businesses and the self-employed. KBank’s CEO Kattiya Indaravijaya has described the initiative as a marriage of KBank’s strengths as a heavyweight traditional lender with the “DNA of a challenger bank to empower a whole new generation of Thais.”
KBank made significant strides in its digital banking business last year. It added 2 million new users of its KPlus online banking app and recorded 11 billion more online transactions than in 2021. For its part, Line BK added more than 1.4 million new users and extended more than 18 billion baht in loans.
Dark-horse Candidates
Some of Thailand’s biggest non-financial companies are also eyeing digital banking licenses. Though their interest in applying is unconfirmed, if they do win licenses they could potentially leverage their enormous existing customer bases to scale up the banking ventures quickly.
According to Nikkei Asia, Thai telecoms giant Advanced Info Service (AIS) will apply for a digital banking license together with top energy provider Gulf Energy Development and state-owned Krungthai Bank. The publication said that the AIS and Gulf’s planned construction of a data center with Singtel near southern Bangkok is intended to support a future digital banking business.
The agricultural conglomerate Charoen Pokphand Group is also reportedly interested in opening a virtual bank. It could potentially leverage its massive network of 14,000 7-Eleven convenience stores if it won a license. It is possible that Alibaba could be involved in the venture given that CP group senior chairman Dhanin Chearavanont and his son Suphachai Chearavanont, the group’s CEO, reportedly met with Alibaba founder Jack Ma over the Lunar New Year holiday in Hong Kong.
Thinking Big
Given that Thailand’s digital banking market faces certain limitations, especially given that less than 20% of the population is unbanked, some firms are already mulling regional expansion. Markets like Indonesia, the Philippines and Vietnam, where either majorities or near majorities of the population lack access to basic financial services, could offer Thailand’s digital banks sustainable growth prospects.
For its part, SCB has invested US$50 million through WeLab Sky (an offshoot of Hong Kong-based digital bank WeLab) in Indonesia’s Bank Jasa Jakarta (BJJ). The market opportunity is much larger than in SCB’s home market. Indonesia has an unbanked population of about 181 million people, more than 2 ½ times Thailand’s entire population.
Meanwhile, KBank has announced it wants to be the “regional digital bank of the new era” and his sights set on both Indonesia and Vietnam, where there are much bigger unbanked populations than in its home market. In May 2022, the Thai lender said it would buy a 67.5% stake in Indonesia’s Bank Maspion for US$220 million. Additionally, in July 2022, KBank set a target of building a 20-billion baht loan book and a retail customer base of 1.2 million by 2023, while also boosting expanding its product portfolio.
Though competition is intensifying in Southeast Asia’s largest emerging markets, there remains much low-hanging fruit to be plucked, and Thailand’s large incumbent banks are in a good position to capitalize on those opportunities in the years to come.
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