Thailand Embraces Digital Future with Virtual Bank Licenses

Out of five applications submitted between March and September 2024, three consortiums received the green light:

• ACM Holding Company Limited: A unit of the Charoen Pokphand Group, Thailand’s largest conglomerate. This consortium is expected to leverage its extensive physical presence through convenience stores and supermarkets, along with expertise from TrueMoney, a widely used payment application.
• Krung Thai Bank Public Company Limited, Advanced Info Service Public Company Limited (AIS), and PTT Oil and Retail Business Public Company Limited: This consortium brings together a leading local lender, a major telecommunications firm, and an oil and gas company. They can capitalize on AIS’s and PTTOR’s large domestic customer bases.
• SCB X Public Company Limited, WeTechnology Limited (backed by WeBank), and KakaoBank Corp.: This group combines a Bangkok-based fintech company with established digital banking experience from South Korea’s KakaoBank and China’s WeBank. The SCBX consortium is anticipated to benefit significantly from KakaoBank’s and WeBank’s operational experience in digital banking.

The assessment criteria focused on the applicants’ qualifications, business plans, and their capacity to deliver new or more efficient financial services through digital channels. A key objective is to serve a broad and diverse customer base, particularly the unserved and underserved segments, including retail customers and SMEs. The aim is also to enhance customer experience, foster financial innovation, and promote healthy competition in the banking sector.

While the introduction of virtual banks is expected to increase competition, Moody’s Ratings suggests a limited competitive threat to incumbent banks over the next three to five years. This is due to regulatory restrictions during the initial phase and the virtual banks’ focus on customer segments typically avoided by traditional banks. Incumbent banks have also significantly upgraded their digital infrastructure and product offerings.

The new virtual banks, operating without physical branches and legacy infrastructure, are poised to be more efficient and offer innovative services by adopting the latest technologies and leveraging their consortium partners’ strengths. However, they will face a challenging macroeconomic environment with high household debt and modest economic growth in Thailand. Lending to underserved segments also exposes them to higher asset quality risks and credit costs.

The approved virtual banks must establish a public limited company, comply with conditions from the Ministry of Finance, and pass a readiness assessment by the BOT before receiving their licenses. They are required to commence operations within one year from the approval date of June 19, 2025. During the initial restricted phase (three to five years), they will be closely monitored and need to gradually increase their capital.

Thailand now joins other Southeast Asian nations like Singapore, Malaysia, the Philippines, and Indonesia in introducing digital banks, marking a significant step towards a more digitally-driven financial future. The success of these virtual banks will depend on their ability to differentiate their offerings and navigate the unique challenges of the Thai market.