Thailand central bank anticipates lower rates due to virtual banking

The Bank of Thailand anticipates that the advent of virtual banks will usher in lower interest rates and fees due to the decreased operating costs associated with digital banking services, which do not require physical branches or large numbers of staff.

The granting of virtual bank licences is expected to bring more competitors into the market, thereby stimulating competition within the industry.

Wipawin Promboon, the senior director for the central bank’s financial institutions’ strategy department, suggests that this competition will likely lead to virtual banks offering reasonable pricing in terms of interest rates and fees.

Virtual banks, due to their ability to manage expenses more effectively, can offer lower interest rates and fees to customers, explained Wipawin. The central bank is encouraging virtual banks to focus on providing financial services and products to unserved and underserved customers, particularly small businesses and individuals.

Offering more competitive pricing should enable borrowers to access loans and other financial services that are currently unavailable to them from traditional commercial banks, she added.

The regulator has noted that purely digital banking services in other countries, particularly China and Brazil, have significantly improved financial inclusion for unserved and underserved populations.

Virtual bank licensing

Wipawin stated that the central bank would carefully determine the suitable number of virtual bank licences for the initial phase, in line with regulations set by the Finance Ministry.

She cautioned that the experiences of other countries indicate that issuing an excessive number of licences or having overly small virtual banks could threaten the sustainability of the new banking model, as witnessed in the UK and Australia.

The Finance Ministry recently unveiled the criteria for applying for a virtual bank licence, with the initial registered capital set at 5 billion baht. Once a licence is obtained, the capital requirement increases to 10 billion baht (US$281 million), which can be reached in phases over a five-year period.

While the initial plan was to restrict the number of virtual bank licences to three, the final decision did not impose any limits on licences. The aim is to open up the process to qualified applicants, allowing the central bank to determine an appropriate quantity that stimulates competition without compromising the stability of the financial system.

In another development, the central bank intends to hold discussions with Visa Thailand and Mastercard Thailand regarding foreign currency conversion fees, known as dynamic currency conversion, according to Somchai Lertlarpwasin, the central bank’s assistant governor for the financial institutions policy group, reported Bangkok Post.

Starting from May 1, holders of credit cards issued in Thailand will be charged a 1% fee for foreign currency conversion when making purchases in baht from merchants and online shops registered outside the country.