APAC'S digital banking boom.

Thailand’s next digital banks

A closer look at some of the considerations for setting up a new digital banking proposition in Thailand and for being awarded one of its forthcoming licences is illuminating in how the approach and requirements are not just trying to drive healthy competition but also ensure better services and distribution to segments of the population.  

The Bank of Thailand’s (BOT) application’s focus on financial inclusion and its awarding of just three licences suggests a strong focus on quality over quantity and the need for strong models to reach underbanked populations including services designed for those with limited financial literacy or no credit history.

Apart from the need for applicants having the requisite strong IT expertise, financial strength and stability, there are also interesting and more nuanced questions around whether or not to have a centralised or decentralised ledger as well as considerations regarding interoperability with other banking infrastructure available in the market.

Also interesting is that these new virtual banks must serve customers principally through digital channels and are apparently prohibited from establishing physical branches or ATMs. They may however offer cash-in and cash-out services through appointed banking agents or partnerships with other providers.

Setting aside these and other factors particular to the Thailand case, there are also some tried and true keys to success based on learnings from successful predecessor digital banks..

Keys to success

Long before an entity seeks to secure a licence or enter the digital banking market by any other means, there are a number of critical factors that need to be considered, and here are just a few.

• Composable and Reactive architecture: Building agility and flexibility into the DNA of a bank’s tech stack, is key to enabling the rapid testing, launching and refinement of innovative products that differentiate. The architecture design must orchestrate the secure exchange of data (inbound and outbound with the broader ecosystem), to allow key flows such as enabling underwriting loans from non-traditional data sources or creating hyper-personalised product offerings. Advancements in Open Banking, AI, blockchain and preparing for increasingly sophisticated cyberattacks are all key areas that banks need to be ready for.   
• Embrace the Cloud: A quick scan across many of the successful digital banks around the world shows a high adoption rate for the cloud (e.g. Allica, Monzo, Starling, Trust Bank). The primary cloud providers such as AWS are providing a highly flexible frameworks and cloud native services that enables iterative adjustment and fine tuning of critical systems such as security, in a cost-effective manner that traditional hosting environments cannot match. This allows for rapid and scalable innovation, empowering tech teams to operate with genuine agility.
• Anchor product: One factor is the anchor product or the offering an entity will lead its market entry with. Essential in this equation is defining how the product will be differentiated in its value proposition or proposition.
• Customer acquisition: Keeping customer acquisition costs low is crucial because the margins in serving the underserved in particular are typically really low. Fortunately, there are good examples and learnings from predecessors to draw upon. Those players who have launched to a large existing digital user bases (on-tap-distribution), have generally been far more successful (e.g. KakaoBank tapping Kakao Talk in Korea, WeBank promoting to WeChat users in China, Rakuten Bank with Rakuten customers in Japan).
• Compliance: Having a simplified way to validate the compliance of programs for example, via very specific and automated reporting mechanisms is key to success.
• Speed to market: This is an important and overarching consideration as it brings together so many phases and components of launching a digital bank. Thankfully, with the help of experienced partners, there are concrete ways of achieving speed.