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Setting the Stage for Standalone Digital Banks in Thailand

Thailand Standalone Digital Banks

Thailand is laying the foundations for standalone digital banks as it strives to catch up with other Asian markets, according to the governor of its central bank.

It was noted that, currently, Thailand is working to build the ecosystems in place in places like Singapore or Hong Kong. Three key pillars are needed to build digital banks: data from non-financial sources, an electronic identification system, and a suitable regulatory framework.

Thailand is stepping up its efforts to ensure these reach international standards, the governor noted.

The authorities in Thailand are trying to keep pace with the digital banking transformation in Asia, where new entrants are emerging to compete with established banks such as HSBC Holdings.

For Thailand, digitisation is seen as a way to spread banking services more widely as well as boost competition.

With regard to digital banking licences, the aim is to have a new financial services provider that can serve the currently underserved, meaning that you have to be able to meet the needs of people on the street.

Singapore is set to issue as many as five digital banking licences to non-banks in June, while eight virtual lenders are starting in Hong Kong this year. Both cities have attracted technology heavyweights.

While Thailand lacks independent virtual banks, local and foreign lenders do offer various digital services in the country, including payments. Singapore’s UOB started its first mobile-only bank, known as TMRW, in Thailand last year.

Still, more digital banking services are needed in Thailand, the governor stated. Existing ones are limited mostly to fund transfers, and lending is “a big challenge” because there is insufficient data to help banks evaluate clients’ creditworthiness.

This can come from when customers use mobile phones, the way they conduct their business using the digital footprint ecosystem.

The Bank of Thailand is working with various parties to introduce electronic lending and other financial services this year. More collaboration between government agencies is key, the governor said.

Enabling digital banks through international collaboration

According to an earlier OpenGov Asia report, the monetary authorities of Thailand and Hong Kong will soon launch a two-tier digital token, part of the process for creating a prototype for cross-border fund transfers between the two economies using financial technology (fintech).

The first tier of the prototype, known as Project LionRock-Inthanon, involves the issuance of a token to Hong Kong banks taking part in the pilot programme, according to a spokesman of the Hong Kong Monetary Authority (HKMA).

The second tier involves the banks distributing the tokens to their corporate customers for settling wholesale payments with other banks, or with other companies.

The two-tier system is a step forward in Project LionRock-Inthanon, which was established in November based on a fintech collaboration between HKMA and Bank of Thailand in May 2019.

The use of the blockchain-backed token is expected to speed up currency settlement between the two economies – with US$19.6 billion in bilateral trade last year – giving companies and banks more competitive exchange rates for the Hong Kong dollar and the Thai baht.

It is also a different usage case compared with the digital currency under development by China’s central bank, which on replacing coins and banknotes in circulation to support retail transactions.

Project LionRock will focus on streamlining cross-border transfer and payment between banks and companies.

The prospect of issuing a central bank digital currency for retail purposes in Hong Kong is limited, as the region has so many retail payment services (ranging from) credit card, debit card, and (others).

Using blockchain, the HKMA’s cross-border payment platform under the “depositary receipt corridor network” enables companies in both Hong Kong and Thailand to settle wholesale payment with each other directly, as the blockchain technology overcomes the shortcomings with the existing correspondent banking model, which involves multiple numbers of intermediaries that often result in payment delays.

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