Four large banks and a few smaller ones deciding to eliminate fees for digital banking transactions will deal a blow to the industry's fee-based income, which contributes a big portion, says the chief of the Thai Bankers' Association (TBA).
"The cancellation of digital transaction fees will certainly affect commercial banks' fee-based income, but the move encourages transformation to a cashless society and beefs up some operators' competitive edge," said TBA chairman Predee Daochai, the president of Kasikornbank (KBank). "It also compels banks to cut their operating costs."
Even though commercial banks must focus more on cost savings, it is unlikely to be enough to completely offset the forgone revenue, he said, meaning banks must search for new sources of income.
The electronic platform offers banks cost savings in managing cash amounting to 140 billion baht a year, Mr Predee said.
Banks are not expected to raise transaction fees at brick-and-mortar branches to offset the missing revenue, he said.
"Banks need to serve all customers who have different demands in financial products and services," Mr Predee said. "For instance, banks still offer cheques, though it is a loss-making service. However, the service demand has declined significantly over the past several years."
Four large banks -- Bangkok Bank (BBL), Siam Commercial Bank (SCB), Krungthai Bank (KTB) and KBank -- on Wednesday made a surprise push into digital banking by offering free transactions on their digital platforms.
The aim is to attract more customers and monitor their financial behaviour and data, which is crucial for banks to fight against new players from platform giants like Alipay.
BBL, SCB and KBank permanently removed the fee for interbank and cross-clearing zone money transfers, bill payments and top-up services through the digital platform, while KTB offers the services free of charge until the end of this year.
Predee: Cost savings won't offset revenue
Kiatnakin Bank yesterday followed in the big banks' footsteps by waiving transaction fees for its online platforms, KK e-Banking and KK e-Banking@PhatraEdge.
Although transactions through physical branches are falling and transaction costs exceed those of digital channels, demand at branches remains intact, Mr Predee said.
Overall mobile banking transactions are expected to surpass 900 million this year, a significant increase from below 600 million transactions the year before. For branches, the number of total branches increased slightly to 6,789 at the end of February from 6,784 at the end of 2017 but declined from 7,016 at the end of 2016.
Mr Predee said PromptPay, a funds transfer through ATM and online channels under the national e-payment scheme, would be unscathed by the no-fee online banking transactions offered by large and some smaller banks, and PromptPay's transactions via ATMs are expected to increase because it is the channel for those not familiar with technology in making financial transactions to avoid fee payments.
With PromptPay, money transfers via ATM machines and online channels to recipients who linked banks' accounts with numbers of mobile phones or ID citizen are free for up to 5,000 baht; 5,001-30,000 baht transfers are charged a fee of no more than two baht; 30,001-100,000 baht transfers cost no more than five baht; and transfers exceeding 100,000 baht are charged no more than 10 baht.
Moreover, PromptPay services are being extended to new areas such as request-to-pay, so it still has demand for PromptPay, Mr Predee said.
Asia Plus Securities said in a research note that the impact from the no-fee services would be limited, as PromptPay already offers money transfers free for transactions of up to 5,000 baht.
The brokerage house estimated that SET-listed banks' fee-based income would rise by 7% this year, down from last year's 9% growth.
Thai shares yesterday experienced a sharp fall, plunging 1% to 1,766.92 points, led by a sell-off in banking stocks. KBANK's shares were off one baht at 212 baht, BBL fell four baht to 198 baht, and KTB declined 20 satang to 19 baht. SCB bucked the trend, rising two baht to 143.50 baht.
Thanyalak Vacharachaisurapol, assistant managing director of Kasikorn Research Center, estimates that banks will lose up to 10 billion baht in fee-based income for the remaining three quarters this year after digital banking transaction fees are waived.
But the moves will not have a significant impact on the overall banks' revenue, he said, as fee-based income represents about one-fifth of total revenue on average. He said banks will seek new sources of income to offset the forgone revenue, while their interest income is promising amid the economic recovery.
In the meantime, Mr Predee, who has been appointed as TBA chairman for a second term, said the association will continue pursuing its five-year business plan, which has so far been implemented for two years.
Zero fees for digital banking transactions would change the landscape of the local banking industry and take a toll on banks' fee-based income. But the other side of the coin is, the digital era creates business opportunities in new areas, including e-commerce.