Bank of Ayudhya (BAY), marketed under the brand Krungsri, targets becoming a full digital bank in a few years and a decentralised finance (DeFi) service provider in 5-10 years.
Even as it upgrades to a digital bank, Krungsri set an ambitious goal to become a virtual bank, using several models under a digital transformation programme that is part of the bank's three-year business plan from 2021-23.
"We define a digital bank as having all financial products and services offered on a digital platform, including call centre service via chatbot," said Sam Tanskul, managing director of Krungsri Finnovate (KFIN), a technology arm under Krungsri.
"This means there is no need for brick-and-mortar branches."
Digital banking journey
The bank already offers some digital financial services and is moving its customers onto a digital platform. There are four mobile banking apps under Krungsri: Krungsri Mobile App (KMA); U Choose app servicing its credit cards; Kept app for savings and investment; and GO by Krungsri Auto for its auto loan products.
As of March 31 this year, KMA had 3.67 million users, while Kept had 151,100 users and aims to have 200,000 by July.
GO by Krungsri Auto had 730,000 downloads, while U Choose had 5.8 million total cards registered.
The four mobile banking apps are considered sufficient for the bank's existing retail customer demand and new client acquisition, said Mr Sam.
KFIN has no plan to develop new mobile banking apps in the short term, he said.
However, Krungsri aims to upgrade the existing apps to offer comprehensive digital banking services, improving customers experiences and increasing the bank's business efficiency while cutting operational costs.
"The bank aims to reduce operating costs via technological development, such as using cloud technology," said Mr Sam.
"It targets lowering cost-to-serve and fixed costs under a digital bank transformation programme."
Exploring new models
There are several forms of virtual banks, such as challenger banks, pure digital banks, neobanks and DeFi.
Digital banks are not only online or mobile banking platforms, but they also digitalise every programme and activity undertaken by the bank, he said.
"A digital bank represents a virtual process that includes online banking and beyond," said Mr Sam.
"Digital banks focus on transparency and seamless customer experience and stratification. Digital banking platforms allow providers to target underserved and unserved demographics."
Challenger banks, neobanks and pure digital banks are forms of digital banks that have no branches and are entirely digital. These models leverage technology and streamline traditional banking processes, replacing them using mobile distribution channels to offer retail services such as saving accounts, loans, insurance and credit cards.
Europe has a lot of challenger banks and neobanks, he said. These digital banking formats are founded in collaboration with several startups with expertise in different fields, such as insurance, savings, credit cards or mortgages.
These ventures set up a digital bank and offer either some specific financial services or a full range of financial and investment solutions.
Mr Sam said Krungsri has been studying the whole range of digital banking models, including DeFi, which offers financial transactions between related parties without an intermediary through the use of blockchain technology.
"There are several forms of DeFi, but Krungsri is mainly concentrating on asset-backed DeFi because of the bank's good risk management basis," he said.
"A DeFi-based financial services offering by Krungsri in the future may include savings, loans and funding mobilisation."
Expanding customer base
Expanding the customer base is a key target under Krungsri's digital transformation programme and the bank is focusing on younger generations and the underbanked segment.
Offering financial services via mobile banking apps, the bank has grown its younger client base, particularly those in Gen Y and Gen Z, said Mr Sam.
The bank is also exploring the underbanked segment, which means people using only 1-2 financial services from an institution -- usually a savings account and a loan account.
"We aim to expand our customer base among younger generations through the digital platform, in line with demand from this segment," he said.
"Younger generations largely prefer financial transactions via digital channels rather than going to physical branches. They don't want to go to bank branches anymore."
Regarding digital disruption, the banking sector worldwide has been transformed to virtual banks and digital platforms to improve cost efficiency, optimising cost-to-serve and fixed costs, said Mr Sam.
The pandemic has sped up this transformation. Globally, many notable banks upgraded their technological capabilities to cater to a new generation of digital-savvy customers.
Investments in technological solutions across financial organisations are more important than ever, he said, and partnership is a key strategy in transforming to a digital banking platform.
For instance, Spain-based BBVA received the world's best mobile banking app award in 2018 and 2019 after transforming to a digital bank. Established in 1857, 50% of BBVA's total customer base are now digital banking clients.
Some 57% of BBVA's total sales are contributed via the digital channel, while it has reduced the process cost per transaction by 31% on average.
DBS, a Singaporean bank founded in 1968, was dubbed the world's best digital bank by Euromoney in 2018, with 57% of its customer base conducting all their transactions via digital channels.
DBS is also one of the world's largest banking API platforms, connected with 400 partners.
Partnership key
Mr Sam said Krungsri has joined hands with 57 fintech firms and startups, which represents the largest number both in Thailand and Asean, via deep collaboration. The tally of tech partnerships is expected to increase to 100 firms in 2022, he said.
"Technology development through the bank's own efforts would take longer to meet our comprehensive digital bank target. Partnership provides a short-cut," said Mr Sam.
Regarding this year's business plan, Krungsri is focusing on creating collaboration projects between the bank and startups supporting three main ecosystems: mobility, living, and e-commerce building up value and benefits to the bank's customers. Data, artificial intelligence, machine learning and blockchain are the key technologies supporting Krungsri in its move towards digital banking, he said.