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19 Nov 2019

Financial Institutions

Digital-only banks without branches for the new age, new business model that needs to be proven in Thai society (Business Brief No.3833)

  • Digital-only banking is a banking business in the modern age that can be categorized into two types based on business models, which aim at different groups of customers:  First, digital-only banks which focus on servicing low to medium income earners who face certain limitations in accessing financial services (Digital-Only A). Second, digital-only banks with customers overlapping with those of commercial banks, and the digital-only banks aim to become an alternative for customers to expedite transactions with lower transaction costs (Digital-Only B).
  • In Thailand, where the banking industry has already begun offering services via internet channels with widespread technological application, digital-only banks will face several challenges to expand their business in Thailand. For example, the issue regarding restriction against access to financial service cannot be fixed by an addition of a sevice channel alone since it is not the main hurdle to financial access. Rather, some people are unable to access the financial service because of their income level. Similarly, some people upcountry have problem accessing loan services because of their low income. Hence, a successful loan approval model requires other elements in addition to an offering of new service models, such as good data analysis to assess credit quality, promotion of financial disicpline and solutions to shore up farmers' income.
  • Additionally, existing Thai banks have already commenced services via electronic channels and applied advanced technology extensively.​  The top five commercial banks in terms of customer base have already offered transactions via the internet channel. The digital-only banks will faciliate greater convience for customers in the process of account opening or certain transactions only. Moreover, big data has been incorporated with machine learning in offering loans to customers.
  • Business cost is high especially during the nascent stage. Thailand's digital literacy standard is still at the intermediate level, and that will increase the costs related to human resources to run the digital-only banks.
  • Limited capability to expand income Digital-only banks focus on basic financial service transacitons such as deposits, funds transfers and payments that have  low-added value to business. This business model will limit the oppportunity to increase the banks' income.
  • In summary, the future success of digital-only banks remains to be proven. Adiditonally, there are questions regarding socio benefits for Thais, who have already had high financial inclusion rate, and the questions regarding digital banking  supervision, that the authorities will have to address.