Virtual banks to revolutionise Thailand’s financial landscape

The Royal Gazette announced that virtual banks are set to become a reality in Thailand, with the Bank of Thailand (BoT) accepting applications from March 20 to September 19 this year. The aim is to stimulate competition and ensure the stability of the financial system, without limiting the number of licences available.

Virtual banks are expected to cater to customers who have been underserved by traditional banking services, including SMEs struggling to secure capital and low-income individuals. This is hoped to reduce reliance on informal borrowing channels, as traditional banks often reject applications for unsecured loans.

The BoT hopes that the creation of virtual banks will lead to lower interest rates and fees, as operating costs for purely digital services are lower due to fewer staff and no physical branches. This should also foster competition, resulting in virtual banks offering more reasonable interest and fee rates.

However, there is ongoing debate about whether these banks can provide easy capital access for low-income earners and SMEs while ensuring consumer safety. The BoT anticipates announcing the approval of virtual bank licences in June 2025, with operations expected to commence in June 2026.

Wipawin Promboon, senior director of the financial institutions’ strategy department at the BoT, stated that the formation of virtual banks should lead to lower interest rates and fees as they lack physical branches and employ fewer staff. He noted that purely digital banking services in other countries have significantly improved financial inclusion for underserved and unserved populations.

A major concern for the Federation of Thai SMEs is easier access to financial resources once virtual banks are established. Sangchai Theerakulwanich, president of the federation, argued that virtual banks could alleviate the liquidity problems faced by SMEs. He suggests that the introduction of virtual banks should enhance competition, assisting SMEs, freelancers, and low-income earners in need of funds, as these banks should be able to offer lower interest rates and fees.

Improved services

Sanan Angubolkul, chairman of the Thai Chamber of Commerce, expects virtual banks to better cater to the needs of customers and provide improved access to financial services for unserved segments of the population and SMEs. He also stated that virtual banks still face challenges in terms of deposit mobilisation and loan analysis.

Moreover, he noted that many traditional banks are offering more digital financial services, such as mobile and Internet banking. He also asserted that while virtual banks are unlikely to significantly impact existing banks’ financial performance, they should intensify competition by offering new services.

Thanyalak Vacharachaisurapol, deputy manager at Kasikorn Research Center (K-Research), expects the impact of new virtual banks on traditional banks to be relatively modest and unlikely to significantly disrupt their operations during the initial three years of operation. She emphasised that having the right business model that covers customer segments, financial products and services, interest rates and fees, business operations and cost control, will be key to the success of virtual banks in Thailand.

However, virtual banks also face a unique set of risks due to their heavy reliance on technology and third-party service providers. Khongsak Kortrakul, security engineer director for Southeast Asia & Korea at Check Point Software Technologies, highlighted that virtual banks are prime targets for cybercriminals seeking to exploit vulnerabilities.

Anothai Wettayakorn, managing director of IBM Thailand, stated that as banks look to experiment with emerging technologies such as generative artificial intelligence (AI), hackers are expected to leverage AI technology at the same speed, scale and sophistication. Therefore, financial organisations and virtual banks must enable responsible, explainable, high-quality and trustworthy AI models, while adhering to regulatory compliance, reported Bangkok Post.