Virtual Bank has arrived

​        The continuous advancement of global digital technology and the changing behavior of consumers using more online platforms in their daily lives are both important factors in accelerating the pace of financial innovation and the creation of new financial service systems, especially virtual banks. Virtual banks are branchless commercial banks that operate through digital channels. The formation of virtual banks has begun to arouse extensive discussions, and many countries have successively issued guidelines for the approval of virtual bank licenses.

        Looking at foreign cases, countries and regions such as Malaysia, Singapore, Taiwan and China have basically similar policies for official approval and issuance of virtual banking licenses, i.e. focusing on promoting competition among financial service providers and providing more space for other businesses in non-financial sectors to compete in the market, so as to meet consumer demand, promote financial innovation and reduce operating costs from physical branch networks. More importantly, this could increase the changes of customers accessing financial services and receiving better treatment than before, especially for SME customers or the retail customer segments that still do not have access to the basic financial services of the financial system, i.e. the unserved and underserved customer segment.

        However, regulators in various countries and regions have supervised the business operations of virtual banks to avoid excessive competition that could affect the domestic financial system. At the same time, they have also formulated the same risk supervision rules as traditional commercial banks, covering capital adequacy ratio and liquidity, but probably less stringently than a universal bank. It is noteworthy that the above-mentioned countries or regions have stipulated in their virtual bank license approval rules the conditions under which a virtual bank must have a business plan and an exit plan. The reason is that virtual banks are new, and new operators usually have high costs in their initial stage of business, face various challenges before reaching the break-even point, and take time to scale up their business or services.
 
        Another focus is on the non-financial institutional operator group. Operators licensed for virtual banking in most countries/regions are concentrated in the fields of e-Commerce, e-Market Place, TechFin, telecommunications and technology, as well as social network platform service providers, because these businesses have ecosystems conducive to the expansion of virtual banking, especially strong digital technologies and customer databases, including personal and behavioral data that can be used to develop other financial products in the future. Two notable examples are China’s WeBank and MyBank. WeBank has grown its business through its huge customer base on the WeChat social network platform, and MYbank has grown its business through the customer base of the e-commerce giant Alibaba’s platform, both of which have access to more than 75% of China’s total population of users in China. Therefore, operators can use big data technology to process various data, especially customer behavior data, to provide more flexible financial products such as using customer behavior information on social media for credit scoring, etc. In addition, the speed with which credit approval can be completed in just a few minutes thanks to the use of artificial intelligence (AI) technology is another factor that has contributed to the considerable success of China’s virtual banking business. Over the past six years, China’s total virtual bank loans have accounted for about 5% of the total value of China’ unsecured personal loan market and about 7% of the total value of China’s SMEs loan market.

        As for Thailand, the Bank of Thailand (BoT) has also begun to formulate policy guidelines for the establishment of virtual banks to encourage service providers to compete with each other by opening up the market to new players and allowing them to enter, in order to develop innovative products and new financial services that can better meet the needs of service users while helping SMEs and retail customers to obtain services from the financial system, preventing the emergence of a monopolistic situation, and in line with the policy direction of regulatory agencies in various countries.

        A virtual bank as required by the Bank of Thailand must meet two main conditions: 1) The business scope must be the same as that of a traditional universal commercial bank, and be subject to the same risk regulatory framework as a traditional commercial bank; and; 2) It must be registered in Thailand and have its head office or parent company located in Thailand in order to be regulated by the Bank of Thailand. The Bank of Thailand will publish the draft guidelines for the establishment application of virtual banks for public comments in the first half of 2022. The draft guidelines, along with other conditions such as access to the commercial banks’ central payment networks, access to key databases and loan interest rate caps, will be important factors in determining the future form and role of virtual banks in Thailand and the impact on other traditional players.

Scan QR Code