The concept of virtual banking is not entirely new to Thailand. Traditional banks have long offered internet and mobile banking services, providing customers with digital channels for various banking activities. Indeed the popularity of digital banking has soared: In 2023, mobile banking transactions in Thailand reached approximately 29.55 billion (1).
In recent years, commercial banks and private corporations have focused on enhancing digital payment services, with mobile wallet platforms and banking applications gaining popularity among Thai consumers as preferred methods for digital payments.
For example, leading commercial banks in Thailand such as Siam Commercial Bank, Bangkok Bank, Kasikorn Bank, and Krungthai Bank have continued to innovate on their mobile banking applications. In addition, all banks in Thailand have adopted PromptPay to streamline digital financial transactions – PromptPay, a Bank of Thailand (BOT) initiative, enables Thai users to link their citizen IDs or mobile phone numbers to their bank accounts, simplifying the process of sending and receiving money without the need for lengthy bank account details.
Tech companies have helped expedite the digital banking revolution. For example, Ascend Money, developed True Money, a widely-used mobile wallet platform that allows consumers to efficiently manage daily expenses, including mobile phone credit, internet credit and transportation tickets.
As a result of this progress, online banking penetration is estimated to reach 69% (of the population) by 2029 (2).
From Digital to Virtual Banking
The true essence, however, of virtual banking lies in its branchless nature, and offering a full range of services exclusively through digital platforms.
As such, The Bank of Thailand (BOT) has recognised that virtual banks are an integral part of developing a robust Open Banking sector, due to their digital-first approach and emphasis on leveraging technology to provide banking services.
In 2023, as part of its vision for the banking sector, the BOT published a consultation paper on Virtual Bank Licensing. The paper outlined the BOT’s vision to encourage innovation, competition and financial inclusion through the licensing of virtual banks (3).
The BOT’s plan included the introduction of up to three new virtual banks. The primary aim of these backs is to cater to the retail and SME segments, with additional focus on the underserved and unbanked populations.
Virtual Banking for the Underbanked
While three licenses may seem a small number, these banks will form a solid foundation in a market that currently has no virtual options. Furthermore, when comparing other countries in the region, three virtual banks is proportionately high.
Thailand currently has 17 conventional banks and has plans for 3 virtual banks. Comparatively, Singapore has four virtual banks and 34 conventional banks, Malaysia has three virtual banks with 42 conventional banks, and South Korea has three virtual banks and 52 conventional banks.
Moreover, given that an estimated half of Thailand’s population remains unbanked – relying on alternative financial services such as payday loans, check-cashing services, money orders and pawnshops to meet their financial needs – and 18% remain underbanked with access to little more than a bank account, nationwide adoption of a virtual banking model is likely to be slow (4).
The BOT expects that by leveraging alternative data and technology, virtual banks have the potential to extend credit to those who have traditionally been excluded from the conventional banking system.
Thailand’s Virtual Banking Framework
In March through April of 2023, the BOT held a public comment period on their consultation paper titled “Criteria for Supervising Virtual Banks” (5). This paper addressed the regulatory framework for virtual banks, aiming to adapt traditional commercial bank supervisory standards to the unique characteristics of virtual banking services.
The consultation period provided an opportunity for stakeholders to offer feedback on the proposed criteria, which will inform the development of regulations. The key points outlined in the paper were as follows:
1. Financial Business Group
Virtual banks within the same financial business group as other institutions must be structured under their own consolidated financial business group. During the initial years of operation, other institutions within the group are prohibited from engaging in lending activities with the virtual bank.
2. Shareholding Structure
The BOT intends to issue additional regulations to supervise the capital of virtual banks and financial institution systems to prevent double counting when the increase in system capital exceeds the actual capital injection from the bank’s shareholding structure.
3. Operational Risk
Virtual banks are prohibited from using trademarks or logos that imply association with other financial institutions or groups.
4. Governance
Virtual banks must have at least one director and chief technology officer (CTO) with a minimum of three years of experience in IT or digital services. The CTO must work full-time for the virtual bank and may not be employed by another legal entity.
5. Related Lending and Related-Party Transactions
Prior unanimous approval from the board of directors is required for virtual banks to engage in transactions with major shareholders or businesses with a beneficial interest.
6. Service Channels and Outsourcing
Virtual banks must exclusively provide services through digital channels, except when necessary to offer services through other channels.
7. IT Systems
Virtual banks must ensure uninterrupted service through their IT systems and may not share deposit systems, lending systems, internet banking services or mobile banking services with other financial institutions.
Additionally, during the initial 3–5 years, known as the “restricted phase,” certain existing rules will be relaxed, including governance, stress testing and business continuity plan requirements (6).
Virtual Bank License Applications
In early March of 2024, “the Royal Gazette published the Notification of the Ministry of Finance on the rules, procedures and conditions for the application for and the issuance of a virtual bank license”, thus formally inviting interested parties to submit their applications (7).
The licensing process is designed to ensure that applicants possess the necessary expertise in technology, digital services and data analytics. Interested candidates have until September 19 (2024) to submit their applications. The Finance Ministry and Bank of Thailand will have nine months to review the applications, after which approved virtual banks will have a year to establish and commence their services. Operations are expected to begin by June 2026.
Required Applicant Qualifications
Applicants for the Virtual Banking License must submit their applications to the BOT and demonstrate the following qualifications:
- Having experience and resources to support virtual banking operations in alignment with the proposed business model and plan.
- Possessing profound expertise and experience in operating technology-driven business and providing services through digital channels.
- Having demonstrable experience in acquiring, accessing, managing and utilising data, including capacity to develop systems or data connections facilitating user activities, allowing them to use their data to conduct transactions with other providers (8).
In addition, the BOT’s criteria for virtual bank operators include being a public limited company with a head office in Thailand, a registered capital of at least 5 billion Baht and an increase to 10 billion Baht within five years.
Candidates
Gulf Energy Development Plc (Gulf) was the first to announce its intent to create a virtual bank, partnering with telecom giant Advanced Info Service Plc (AIS), Krungthai Bank Plc (KTB), and PTT Oil and Retail Plc (OR) to form a joint venture.
Second to declare interest is SCBX, a financial arm of Siam Commercial Bank, teaming up with South Korea’s largest digital bank, KakaoBank. SCBX will partner on deployment with WeBank, China’s first digital-only bank, founded in 2014.
Mr. Arthid Nanthawithaya, Chief Executive Officer of SCBX noted:
Our collaboration with WeBank should pave ways for a collaborative approach in expanding our Virtual Bank’s technological breadth and depth, which will enable us to provide better banking experience to the customers. Our consortium looks forward to boost banking solutions through innovative product and service offerings to serve the needs of the Thai people (9).
Charoen Pokphand (CP) Group, Thailand’s largest conglomerate, also expressed its interest in applying for a virtual bank license. CEO Suphachai Chearavanont has said that the group might operate either with partners or through its subsidiary TrueMoney, backed by China’s Ant Group.
——
In Summary
Thailand’s journey toward virtual banking signifies a major leap in the nation’s digital transformation. Traditional banks and private corporations have laid the groundwork by offering robust internet and mobile banking services, but the shift from digital to fully virtual banking represents a deeper transformation. Virtual banks, characterised by their branchless operations and digital-first approach, are poised to reshape Thailand’s financial landscape over the next 5-10 years.
The Bank of Thailand (BOT) has been instrumental in this transition, albeit cautious, recognising the importance of virtual banks in creating a robust Open Banking sector. The introduction three new virtual banks focusing on retail, SME segments and underserved populations will mark a significant step forward in Thailand’s economic progress.
