Thailand central bank anticipates lower rates due to virtual banking

The advent of virtual banks is poised to revolutionize the banking landscape in Thailand, promising lower interest rates and fees while fostering competition and financial inclusion. This article explores the anticipated impacts of virtual banking on interest rates, fees, and access to financial services, as outlined by the Bank of Thailand.

Virtual banks, characterized by their digital-first approach, boast lower operating costs compared to traditional banks with physical branches and extensive staff. Consequently, the Bank of Thailand foresees a reduction in interest rates and fees for customers, driven by decreased overhead expenses associated with digital banking services.

The granting of virtual bank licenses is expected to introduce more players into the banking sector, stimulating healthy competition and innovation. Wipawin Promboon, senior director at the central bank’s financial institutions’ strategy department, emphasizes that increased competition will compel virtual banks to offer competitive pricing in terms of interest rates and fees, benefiting consumers.

Virtual banks are encouraged to target unserved and underserved customers, particularly small businesses and individuals, as part of their service offerings. By leveraging their cost-effective operations, virtual banks can extend financial services to segments of the population that have been overlooked by traditional commercial banks, thereby promoting financial inclusion and empowerment.

Learning from Global Experiences

The Bank of Thailand draws insights from international experiences, particularly from countries like China and Brazil, where purely digital banking services have significantly enhanced financial inclusion. By studying successful models and best practices, Thailand aims to replicate these achievements and address the needs of marginalized communities through virtual banking initiatives.

The central bank exercises caution in issuing virtual bank licenses, mindful of the potential risks associated with an excessive number of licenses or overly small virtual banks. Striking a balance between fostering competition and ensuring the sustainability of the banking model is paramount, as witnessed in past experiences in the UK and Australia.

Criteria for Virtual Bank Licensing

The Finance Ministry has unveiled criteria for applying for virtual bank licenses, with stringent requirements to ensure the stability and credibility of license holders. Initial registered capital and subsequent capitalization milestones are set to guarantee the financial strength of virtual banks and mitigate risks to the banking system.

While the initial plan aimed to limit the number of virtual bank licenses, the final decision prioritizes open competition, allowing qualified applicants to participate in the licensing process. This approach enables the central bank to assess the market dynamics and determine the optimal number of virtual banks to foster healthy competition without jeopardizing financial stability.

In a related development, the Bank of Thailand intends to engage with Visa Thailand and Mastercard Thailand regarding foreign currency conversion fees. The introduction of a 1% fee for foreign currency conversions on credit card transactions made in baht from merchants outside Thailand aims to align with global standards and protect consumers’ interests.

As Thailand embraces the era of virtual banking, stakeholders anticipate transformative changes in the banking landscape, including lower interest rates, enhanced competition, and expanded access to financial services. Through careful regulation, strategic partnerships, and a commitment to financial inclusion, Thailand aims to harness the potential of virtual banking to create a more inclusive and dynamic banking ecosystem.