Bill Gates's 1994 comment that "banking is necessary, banks are not" seems more prescient than ever, with digital technology disrupting the financial landscape and pushing entrenched banks to the tipping point.
Giant platforms, fintech startups and other service providers with large customer bases, such as Google and Grab, are moving into the payment realm and aim to venture into other financial products.
Alibaba and Tencent are notable examples. They have set up licensed banks to provide consumer loans with near-instant decision-making by analysing massive amounts of accumulated customer behavioural data.
Moreover, PromptPay -- the free fund transfer service under the national e-payment scheme -- has hastened the erosion of the traditional banking model. Banks' once-lucrative payment and transaction services have inevitably experienced a margin squeeze.
Amid the disruptive threats, local banks have made the bold decision to strike back by disrupting their own banking transaction services in favour of online channels to fend off new players looking to step onto banking's traditional turf.
A survival strategy of disrupting indefensible service areas is aimed at preventing the entire industry from being washed away.
SELF-DISRUPTION
Siam Commercial Bank (SCB) made waves a few weeks ago by scrapping fees for interbank and cross-clearing zone fund transfer, bill payment and top-up transactions over online channels. The bank's move compelled other banks to follow suit.
Thana Thienachariya, SCB's chief marketing officer, said the no-fee service for digital transactions reflects the bank's "going upside down" strategy to make services better, faster and cheaper, as well as create a distinct brand perception in consumers' minds.
The manoeuvre is a bid to survive against disruptive competitors that have put banks in the firing line worldwide.
Consumers continue to demand more from products and services. They want customised products and services that can be completely and conveniently processed in the blink of an eye.
Banks will continue to charge fees for ATM transactions. (Photo by Seksan Rojjanametakun)
The no-fee service certainly takes a bite out of the bank's fee income, but it also helps build a long-term engagement with customers, allowing SCB to cross-sell services more effectively, Mr Thana said, adding that the free services will also facilitate an increase in users making transactions through SCB Easy.
The bank's mobile application, SCB Easy, is the second-largest mobile banking app behind K Plus from Kasikornbank (KBank).
SCB aims to increase the number of SCB Easy users to 10 million by year-end, up from 6.5 million.
After relaunching the app five months ago, transactions made through the channel increased to 220 million, or 80% of the bank's total.
Mr Thana said there have been 17,000 new SCB Easy users, of which 25% are new bank customers, since the bank's no-fee service for digital transactions began on March 26.
But the bank has no plans to cancel ATM fees, he said, because that channel has high operating expense, particularly in cash management.
During a September 2017 interview, Mr Thana told the Bangkok Post that Thai banks had 1-2 years to adapt to disruptive digital platforms, which are changing the way people spend, live and make payments.
Simply put, banks are faced with extinction as technology chisels away their once-lucrative operations.
Having a large customer base gives banks the distinct advantage of having databases to analyse financial behaviour for launching services and products that meet customers' needs and lifestyle. Moreover, banks can use the money that consumers deposit in accounts for loan extensions to generate interest income, Mr Thana said.
Local banks still have time to make the digital transformation, he said, as they have ample profits to funnel towards creating a new banking platform. Customers still trust banks, in his view, even as Facebook, Google and Line gain loyalty.
SCB wants its mobile app to progress beyond daily banking, aiming to facilitate customer payments for movies, concerts, restaurants and even donations to match their lifestyle.
KBank president Kattiya Indaravijaya said an additional 20,000 customers have downloaded the K Plus app since fees were eliminated.
Yet the country's fourth-largest lender by assets has no plans to cut fees for other banking channels, especially ATMs, because it wants to migrate conventional transactions to the digital platform to cut costs incurred from cash transactions.
Thai Bankers' Association chairman and KBank co-president Predee Daochai said the bank expects to increase mobile banking users to 10 million by the end of the year.
KBank also anticipates that the cancellation of digital transaction fees will boost the bank's internet and mobile banking transactions to 6 billion by mid-2018.
K Plus transactions grew by more than double to 25,000 per second on March 28 -- the first day free digital transactions were introduced -- from 12,000 per second in the past.
MARGINAL IMPACT
Despite how banks are poised to lose a considerable amount of income derived from online transaction fees, the looming loss can be shouldered if a larger gain is on the horizon.
Thanyalak Vacharachaisurapol, assistant managing director of Kasikorn Research Center, estimates that banks will lose 9 billion baht in fee-based income for the remaining three quarters of this year after digital banking transaction fees are waived.
Electronic banking transactions normally contribute an annual income of about 15 billion baht for banks, accounting for 7-8% of banks' total fee-based income worth 190 billion, which represents 20% of total revenue. Based on this information, the impact of no-fee services is insignificant, Ms Thanyalak said.
A larger customer base is expected to form after the elimination of digital transaction fees, which will allow banks to analyse the financial demand pertaining to the introduction of products and services that meet customer needs.
Ultimately, banks will be able to generate additional income to offset forgone revenue in the future, Ms Thanyalak said.
In line with the bank's elimination of online transaction fees, KBank has whittled down its non-interest income growth target this year to a contraction of 6-8% from flat growth predicted last October.
In 2017, KBank's consolidated non-interest income of 62.7 billion baht had slipped by 1.03 billion, down from 63.7 billion a year earlier, according to the bank's financial statements.
KBank and its subsidiaries' non-interest income accounted for 40% of total income in 2017 and 41.5% in 2016.
In a research note, Asia Plus Securities said the impact from no-fee services would be limited because PromptPay already introduced free money transfers for up to 5,000 baht per transaction.
The brokerage firm has estimated that SET-listed banks' fee-based income will rise by 7% this year, down from last year's 9% growth.
Maybank Kim Eng Securities Thailand (MBKEST) concurred with Asia Plus's view that the removal of online transaction fees would have limited impact on bank revenue.
The firm forecasts that a mere 0.7-1.3% of banks' total revenue will be shaved off this year from no-fee services.
KBank is expected to be hit the hardest by the cancellation of online transaction fees, given that it has the largest number of mobile banking app users.
"The no-fee service impact will be short-lived, as big data technology will help banks have better insights into consumer demand," MBKEST said. "They are expected to be able to generate higher income and better risk management."
NON-BANK OPERATORS
Maneerut Anulomsombut, chief executive of SEA Thailand, a holding company of online gaming platform Garena and digital financial service platform AirPay, said the cancellation of online banking transaction fees by commercial banks has had a positive impact on the overall business because it encourages more digital activities, subsequently providing more convenience for consumers.
But non-bank operators are also affected by banks' no-fee services for online transactions, especially those whose revenue models primarily rely on this service.
"AirPay does not focus on making money from bill payments, but rather on the in-app experience, value-added lifestyle services and other tasks for AirPay application users," Ms Maneerut said, adding that the company also has non-bank users who will not be affected by the cancellation of online banking transaction fees.
Teerawat Tilokskulchai, chief strategy officer of Ascend Corporation, which is CP Group's digital business unit and the operator of True Money, said the latter has been offering money transfers and bill payments free of charge since 2013.
The cancellation of online banking fees is a boon for users using electronic channels and will help propel Thailand towards a cashless society, he said.
"We will focus more on online-to-offline payments by working with strategic partners to expand the e-wallet from the previous fixation on online service payments," Mr Teerawat said.
Transactions via mobile application and Internet banking are now free.
Piyachart Ratanaprasartporn, chief executive of 2C2P Pte Ltd, a provider of e-payment gateways, said the move by major banks will drive mobile payments to expand to more than 50% of total e-payments this year.
The elimination of fees is strategically necessary to retain customers, he said, and banks can leverage customer data to search for new revenue sources, such as digital lending.
"Counter payment will be impacted the most, and non-bank e-payments might be less attractive to users," Mr Piyachart said.
He said medium-sized banks will probably embark on a similar move for survival over the next six months.
The rise of QR payments among small and medium-sized enterprises is another factor encouraging the use of mobile payments.
Pratthana Leelapanang, chief consumer business officer of Advanced Info Service Plc, which has an e-payment service called MPay, said major banks removing online transaction fees will stimulate the country's leap into a cashless society, especially for consumers who are familiar with making monetary transactions digitally.
"We believe that [the move] will not have a lot of impact on non-bank operators, as they offer a variety of services for digital bill payment, together with money transfers with attractive promotions and a small fee charge, or even free of charge," Mr Pratthana said.
Pawoot Pongvitayapanu, a committee member of the Thailand E-Payment Association, said the strategy benefits Thai consumers and encourages the development of mobile payment, but financial regulators and the Thai Bankers' Association should level the playing field.
"There are many instances where the country has introduced [financial] policies and leading banks are the first to participate and initiate [policies] such as PromptPay and QR code payment," Mr Pawoot said.
There are 100 e-payment service providers licensed to operate under the Bank of Thailand, and the majority are non-bank operators.
"The rise of non-bank operators encourages more sources of funding for consumers and stimulates competition, which drives down the price of banks' service fees," Mr Pawoot said.