With the Bank of Thailand issuing regulations to govern financial institutions engaged in the e-marketplace, the domestic e-commerce arena is poised for local firms to battle it out with foreign e-commerce behemoths.
Effective from Jan 16, the central bank is requiring financial institutions interested in operating in e-commerce to provide notice of at least 30 days before setting up shop.
The Bank of Thailand allows banks and non-banking companies to display, buy, sell and offer payment for goods and services sold via the platform. These firms are barred from providing logistics services.
Five of the institutions in the e-marketplace are banks and the sixth is the nonbanking subsidiary of a bank.
“If small and medium-sized enterprises [SMEs] are allowed to start e-commerce businesses, I don’t see why banks should not be allowed to. After all, people trust banks, and they are in a much stronger financial position,” said Suebsak Liwlak, founder of e-commerce consulting firm Vcommerce.
Despite their financial vigour, it will not be easy for banks to enter this market segment, he said. Firstly, financial institutions do not have much experience building platforms and they do not have logistics or supplier networks, which platforms like Lazada have spent years developing.
Banks do, however, have a natural advantage in the payment systems sector, but even here they face stiff competition from technology giants like Alibaba and Apple.
Despite the handicaps in customer database, logistics support and data analytics, banks are committed to devising a strategy not to compete until death, but rather compete persistently against e-commerce giants for market share.
HYBRID SERVICE
Engaging head-on with digital giants in price competition may be a risky bet for financial institutions. Large platforms like Amazon and Alibaba control a substantial portion of the products they have on sale, which gives them leverage over suppliers.
Banks’ e-commerce platforms are entering a market that is poised to get even more fragmented and will be relatively small, at least in the initial stages. Moreover, they may be confined to the Thai market alone, or other select markets that allow banks to engage in non-financial businesses.
Mr Suebsak said banks can still standtheir ground in terms of pricing by offering a hybrid service in which consumers use the platform as a discount catalogue, rather than as a full-fledged e-commerce platform. Under this scheme, consumers will use the sites to obtain codes to purchase products in offline stores.
“This model is already in place to a certain extent,” he said. “Many of my clients who sell stuff on the Sunday market pay banks to send SMS with promotions to promote their products.”
Despite entry barriers and the highly competitive nature of the industry, banks can leverage their relationship with consumers to offer a more streamlined experience than what traditional platforms have already offered.
“For example, if I am selling a product, I can refund a return almost instantly,” Mr Suebsak said. “If I am buying, I can pay for my purchases in cash at a bank branch, just like I would pay for services at 7-Eleven.”
It is also easy to imagine banks offering lucrative on-the-spot loans to purchase specific high-ticket items such as electronics. Platforms could push a loan suggestion to users based on their browsing history or before logging out.
The biggest advantage of financial institutions, however, may not occur to consumers, but to small suppliers selling their products on the platform.
“One of my clients’ greatest pains is securing capital in the beginning stages of their business, before they register it as a company,” Mr Suebsak said.
A history of sales can provide the basis for a credit rating that will allow even relatively young entrepreneurs to secure loans.
“A bank doesn’t even have to pay them in real money,” Mr Suebsak said. “Instead, it can provide [startups] with a line of credit that can only be used in for advertising on the banks’ e-commerce platforms, on Google and Facebook, since advertisement is the largest cost [shouldered] by these entrepreneurs.”
As foreign technology giants continue to capture a larger share of the e-commerce market, it would make sense for Thai banks to cooperate instead of compete against one another, Mr Suebsak said.
“Instead of creating their own platforms, banks could join hands to acquire a local startup and, through it, acquire a sizeable share of the market,” he said. “Eventually, they could even expand this platform into foreign markets.”
Worawoot Ounjai, chief executive of SET-listed COL Plc, which is under Central Group, said Thailand’s e-commerce will have only three players dominating the market within 3-5 years, as the nature of the industry requires a winner-takeall approach.
Banks might have money and customer databases, particularly among SMEs, but the know-how and expertise required to be successful in e-commerce are vastly different, Mr Worawoot said.
But most importantly, the e-commerce ecosystem comprising suppliers, customer insights and logistics is the main barrier impeding the entry of banks, he said.
“Banks will not impact the intense competition that existing online giants are already mired in,” Mr Worawoot said. “But if Amazon comes to Thailand - this would be an actual game-changer.”
NOT DIRECT RIVALS
Banks are keen on providing an e-marketplace service that prevents the disruption of their payment and lending business by giant platform firms such as Alibaba’s Ant Financial and Tencent.
Amid the digital backdrop, barriers to entry in banking, created by the massive investment in infrastructure and human resources in the past, have diminished.
Data is king, as it allows operators to rapidly create products and services that keep pace with consumer demand.
Providing an e-marketplace will allow banks access to consumer behaviour data when designing tailor-made financial products to better serve the demands of each customer niche.
Online and offline payment networks, together with trust and connections with online vendors, are a key strength banks own when luring online buyers to shop at banks’ e-marketplace platforms, said Bangkok Bank (BBL) executive vice-president Prassanee Ouiyamaphan.
“We don’t want to be direct rivals with existing e-commerce companies,” she said. “What we want is to provide a full range of services to customers.”
With the digital platform, banks can analyse customers’ cash flow and it is easier for SMEs to access bank loans, Mrs Prassanee said.
Providing a payment gateway is another key role for banks utilising the digital platform, she said.
With trust and reputation in place, consumers can be more confident about safety when buying products online through banks’ e-marketplace platforms.
BBL is one of six financial institutions applying for the Bank of Thailand’s permission to operate their own e-marketplace platforms.
The country’s largest lender by assets joined the Commerce Ministry’s Department of International Trade Promotion to operate an e-marketplace via Thaitrade.com in 2015.
Thaitrade.com initially started as a business-to-business (B2B) platform and has since expanded into a business-to-consumer (B2C) platform, covering both international and domestic trade, respectively.
BBL plans to replace Thaitrade.com with the bank’s own e-marketplace platform and rename it once the central bank grants approval.
However, some banks remain leery about jump-starting their own e-marketplaces.
Thakorn Piyapan, head of digital banking and innovation at Bank of Ayudhya (BAY) and head of Krungsri Consumer Group, said the bank is studying its e-marketplace platform after the central bank approved financial institutions offering such services.
Several business models for e-marketplace platforms, including partnerships and acquiring existing platforms, are being considered by BAY, Mr Thakorn said.
The competition being waged by existing e-commerce behemoths is the main source of apprehension, both locally and internationally, he said, adding that banks cannot survive if they apply the same model as e-commerce giants do.
Logistics is another key area required to achieve and maintain success, and banks are well-aware of this - studying the area attentively.
An e-commerce platform also needs large and ample resources, such as human capital, technology and funding. With all of the factors taken into account, BAY will not be in a rush to enter this new service, Mr Thakorn said.
The bank wants to be certain about its e-commerce business direction before seeking the regulator’s approval, he said.
STIFFER COMPETITION
The local e-commerce industry in 2018 is likely to face increasingly stiff competition as local companies are going head-to-head against foreign goliaths, with financial institutions, seen as newcomers in the battle arena, having to find strengths and new partnerships to survive.
According to the Electronic Transaction Development Agency, continuous growth in the e-commerce industry is inevitable as the value of Thailand’s e-commerce market is estimated to expand by 9.86% to 2.8 trillion baht. Of the total value, B2B is forecast to amount to 60%, while B2C and business-to-government (B2G) are projected at 28.9% and 11.6%, respectively.
Asian e-marketplaces will aim to invest and expand services that garner revenue from online shoppers through shopping, e-payment and logistics. On the other hand, banks need to protect their revenue as there is a growing threat to survive in the digital vortex.
“Big Asian players, such as China-based Alibaba and JD.com as well as Singaporebased Shopee under Garena have services covering all aspects of e-commerce marketplace, payment and financial services that are threats to banking revenue,” said Pawoot Pongvitayapanu, president of the Thai E-Commerce Association and founder of Tarad.com.
Global giants have use big data analytics extensively to generate information from sales transactions in their e-marketplace and offer trade loans with an accurate credit scoring system. This is a tool that has been highly developed and keeps them ahead of any possible new entrants that do not have the resources to acquire big data technology and do not have the large numbers of sales and suppliers that make the data directionally useful.
An e-marketplace also has insights into customers such as profile, location and estimated revenue per month. These criteria are used when assessing credit distribution through consumer loans.
On the other hand, banks only have customer databases without transaction details. But this is no longer the case, as banks are set to expand into the e-marketplace, thus reaping the benefit of customers’ data dimension as a result.
“Banks need to find existing local e-marketplace operators to partner with in order to get [higher ground], as this requires different know-how and skill sets,” Mr Pawoot said. “I expect that banks will not make the huge investment sum of 1 billion baht to instigate a cutthroat price war, as they have a different business approach.”
Sheji Ho, group chief marketing at aCommerce, a Southeast Asia e-commerce solutions provider, said Thailand’s central bank’s move is strategic yet long overdue to expedite the rate of innovation in Thailand.
Everyone has seen how China has transformed itself into a leading global innovator in financial technology over the last 10 years, spearheaded not by traditional financial institutions, but rather by aggressive e-commerce players such as Alibaba and Tencent.
Both offer financial products and services on e-payment platforms (Alipay and WeChat Pay) and online banking (MYbank and WeBank), which compete directly with traditional banks and insurance companies.
Mr Ho said the threat is not only from China, but also from within Southeast Asia. Indonesia is quickly leaping ahead in terms of financial technology led by companies like Go-Jek, which is backed by the likes of Google, Tencent and KKR. Go-Jek offers peer-to-peer payment using motorbike drivers as mobile ATMs.
Thai companies are moving slower than their Indonesian counterparts and risk losing customers to the Chinese giants as well as regional e-commerce companies.
At the end of the day, competition is good for Thais and SMEs, with e-commerce shifting from a mere retail channel to an entire ecosystem offering additional services such as payment, loans, insurance and credit score.
“Those at risk are traditional financial institutions like banks and insurance companies that do not act fast enough,” Mr Ho said.
Additional reporting by Jesus Alcocer