Virtual banks are 10 times more likely to reach untapped retail customers than traditional banks, improving the country’s rate of financial inclusion, say new industry players.
According to Tanyapong Thamavaranukupt, co-president of Ascend Money, the planned virtual banks are expected to serve 7-19 million individuals, compared with 2-3 million served by existing traditional banks.
As a result, the virtual banking business should enhance financial inclusion in line with the Bank of Thailand’s requirements, he said at the “Virtual Bank: Game Changer for Financial Thailand” seminar yesterday.
However, Ascend Money’s virtual bank will offer lower lines of credit than traditional banks, likely between 3,000-5,000 baht per individual customer, compared with the 70,000-100,000 baht typically offered by traditional banks, he said.
On June 19, the central bank announced the three successful applicants to establish the country’s first batch of virtual banks.
They are required to commence their business operations within one year of the date of the Finance Ministry’s approval, which was granted on June 19.
The winners are ACM Holding Co (TrueMoney), backed by the Charoen Pokphand Group; Krungthai Bank (KTB), collaborating with Advanced Info Service Plc and PTT Oil and Retail Business Plc (OR); and the SCB X consortium, comprising SCB X (the holding company of Siam Commercial Bank), KakaoBank (South Korea’s largest digital bank), and WeBank (a global digital bank known for its advanced technology).
Ascend Money operates an e-money business under the TrueMoney brand. Leveraging technology, especially artificial intelligence and machine learning, TrueMoney employs only eight loan analysts to process roughly 8 million loan applications annually, compared with around 500 analysts employed by traditional banks.
“For retail loan analysis, TrueMoney relies on humans for only about 1% of applications, while 99% is handled using technology and alternative data. Our virtual bank will similarly leverage technology to keep operational costs much lower than those of traditional banks,” said Mr Tanyapong.
Punnamas Vichitkulwongs, chief digital platform business officer at SCB X, said risk control is a critical factor for virtual banks to survive and sustain business growth.
Fraud risk in particular would be carefully managed in alignment with digital banking services, he noted.
SCB X’s virtual bank will monitor operational, market and credit risk, resembling traditional banking practices, said Mr Punnamas.
Focusing on unserved and underserved customer segments, as required by the regulator, presents a credit risk based on the lower income levels of this market, he said.
Rising household debt is a problem in Thailand, weighing on the country’s economic growth. Around 40% of households rely on informal loans, with an average debt of 54,000 baht per household.
Under the modernised business model of virtual banks, new entrants are expected to offer financial products and services at lower cost, using a risk-based pricing model.
“For example, we can provide accident insurance for food delivery or motorcycle taxi drivers at a premium of just 10 baht per day. This makes the service accessible, compared with existing premiums of 3,000 baht a month, while a rider’s monthly income is around 7,000-8,000 baht,” said Mr Punnamas.