Open data is a key factor to survival for the three virtual banks in the pipeline.
Since digital loans are a key product to generate profit for the new banking businesses, open data is necessary to allow virtual banks to attract customers and control asset quality, Sam Tanskul, managing director of Krungsri Finnovate (KFIN), the corporate venture capital unit under Bank of Ayudhya (Krungsri), said at a Bangkok Post Tech Conference 2023 session entitled "Thailand's Innovation Redefined: New S-Curve, AI and Virtual Banking".
Moreover, size is crucial for virtual banks in Thailand to secure a footing and survive. As a result, the Bank of Thailand requires minimum registered capital of 5 billion baht to apply for a virtual bank licence. Most fintech companies, which offer financial or banking services, cannot survive or succeed in this sector.
Business operators interested in applying for a virtual bank licence from the central bank have collaborated in a consortium to strengthen technology, data and financial conditions.
More players in a new business model will create higher competition, particularly regarding pricing. As a result, consumers are able to get lower interest rates from the new banking service, he said.
Cybersecurity is another key factor for both existing digital banking service providers and the new virtual banks. While Thailand ranks among the top three countries in terms of mobile banking adoption, it is subject to high levels of financial fraud. As a result, financial institutions need to continually educate consumers on cyber-risks.
The adoption of biometric scans from National Digital ID Co (NDID), a firm that provides digital identity verification, will help to enhance cybersecurity and provide more convenience to digital banking consumers.
NDID facial scans enable mobile banking users to easily verify themselves on mobile banking apps as they do not need to commute to brick and mortar branches anymore.
Moreover, a secure system is needed to build confidence for users. If a bank's mobile app fails, users are ready to switch to other apps, as there is no brand loyalty in the digital era, Mr Sam said.
Speaking on the topic of "Virtual Banking: Navigating Opportunities and Challenges" Vatsun Thirapatarapong, country manager of Amazon Web Services (AWS) Thailand, said the need for virtual banks varies country by country.
Mr Sam, left, and Mr Vatsun share insights on virtual banking at the forum. Varuth Hirunyatheb
According to Kasikorn Research Center, Thailand has 25 banks and 96% of citizens over 15 have a bank account, but financial inclusion for credit services has a penetration rate of only 30% while the average for Asia-Pacific is 38%. So virtual banks can boost the accessibility of financial service credit schemes, he added.
Virtual banks also empower technology with less use of people and investment as well as time to market. For example, virtual banks in Vietnam can offer services in 10 months after getting a licence, and in the UK virtual banks enable users to open a bank account in two minutes.
Virtual banking holds great potential to accelerate innovation in financial services, offering the potential for unique value propositions to emerge in Thailand that will ultimately benefit the customer.
"Characteristics key to the success of virtual banks are being data-driven, leveraging ecosystems, adopting an intense customer-centric approach and a focus on digital experience. For these reasons, virtual banks are finding a natural home in the cloud. Instead of contending with legacy infrastructure inherited alongside on-premises data centres, virtual banks that are born in the cloud and have decisively committed to go cloud-native are finding long-lasting success," he said.
"We're glad to see the Bank of Thailand developing third-party outsourcing and technology risk management guidelines for virtual banking that are cloud-friendly, proportionate, risk-based and outcome-focused. And we firmly believe that the cloud is not just fundamental to virtual banks, but it also supercharges their business and operating model to optimise their operations, go from idea to implementation quickly, and enable security and compliance at scale," he added.
The cloud platform supports virtual banks in evidencing their compliance with the central bank's requirements and expectations.
"Regulations continue to evolve in this space, and we're committed to collaborating with financial institutions and the authorities to harness the benefits of cloud and manage technology risk," said Mr Vatsun.
He said there are four key success factors among virtual banks in other countries, including a focus on customers, using data for monetisation and differentiating products, having partners in the ecosystem and ensuring a good user experience.
"Customers always expect cheaper things, good choices and convenience. Having a virtual bank will benefit customers amid tough competition," said Mr Vatsun.
From a technology perspective, use data wisely as it can help monitisation, and use it mindfully as it comes at a cost because it requires users to share data to get greater convenience and they need to share some privacy, he said.
Virtual banks can partner with technology in the ecosystem in order to gain an advantage from global technology in security but it requires shared responsibility by encrypting their own data and securing the process to ensure trust and security.
He emphasised that data will be the key differentiator and facilitate segmentation.