Focus areas for Bank of Thailand’s Fintech policy: Productivity, Immunity, and Inclusivity
In a speech at the Bangkok FinTech Fair 2018, the governor of the Bank of Thailand (BOT), Dr Veerathai Santiprabhob, outlined BOT’s policy direction on Fintech development. He emphasised three key imperatives for formulating financial sector policy for Thailand and the region as a whole: productivity, immunity, and inclusivity.
Boosting productivity has become critical due to the structural transformation of an ageing workforce in the region and the pressure to boost business competitiveness in the face of new competitors arising from an expanding global workforce and emergence of large e-business platforms. Moreover, Fintech firms are disrupting the long-standing banking value chain.
In this area, Fintech can enhance efficiency in financial services and lower their cost and improve ease of doing business, thereby raising economic productivity.
New electronic payment ecosystems can enable more efficient transfer of funds and significantly lower transaction costs for customers. Adoption of fintech platforms will allow banks to shift to less costly and more efficient digital services from the current brick-and-mortar model.
Dr Santiprabhob also highlighted the scope for efficiency improvement in lending processes through usage of transactional data from e-commerce and new payment platforms and change in business model from collateral-based lending to information-based lending.
He added, “Meanwhile, blockchain has advanced technology behind many aspects of the financial services, especially back-office operations and fund transfers.”
“Amidst the fallout from the Global Financial Crisis of 2008, where unconventional monetary policies flushed global financial market with excess liquidity, we are now entering the cycle where major central banks have started normalizing their monetary policies. Along the normalization path, one should expect to see market corrections and volatile asset prices,” said Dr Santiprabhob.
US trade protectionism (and possible retaliatory measures from other countries), global warming, geopolitical risks and cyber threats also present causes for concern.
Here, fintech can help banks and businesses improve their risk management. Banks can use data from new payment ecosystem and digital transactions to better analyse business conditions and make more accurate forecast of customers’ credit demand and credit risks.
Additionally, emergence of new data could unlock new hedging products, especially in the insurance industry. Technologies like artificial intelligence, biometrics, and blockchains can help safeguard financial information, improve identity verification, and reduce the number and magnitude of financial frauds.
Income and wealth inequality is a pressing social and economic issue in Thailand and many countries in the region. Ignoring these issues can threaten long-term social and economic stability, increasing social polarisation, resulting in political gridlocks.
At the moment, the Thai public is facing low long-term savings and high household debts, with Thailand’s household debt to GDP ratio amongst the highest in the region. Many households lack access to efficient and low-cost financial services for deposit, payment, insurance or loan products.
Fintech can play a key role in improving financial access of customers, especially those who have been underserved by the current financial system. For instance, online access and smartphone applications are providing new channels to reach customers. Fintech innovations can offer a range of options and solutions to meet varying requirements of individuals.
Fintech applications can also help with cross-border transactions for small businesses and enable fast and cheap remittance transfers for immigrant workers.
Moreover, information-based lending can help small businesses without adequate collateral gain access to fairly priced funding. SMEs account for over 80 percent of total employment in Thailand and they currently have limited access to finance due to lack of financial management skills and collateral.
Thai public is facing big hurdles of low long-term savings and high household debts, with Thailand having household debt to GDP ratio amongst the highest in the region. Many households lack access to efficient and low-cost financial services, be it the deposit, payment, insurance or loan products. These people need to be better served by our financial system to be able to unlock their potential, improve standard of living, and ensure their financial security as they age.
Dr Santiprabhob lauded several Fintech-related developments and initiatives taking place in Thailand and around the region.
These include real-time and low cost cross-border money transfer and remittance platforms, biometric verifications for e-KYC to facilitate remote access to financial services, machine learning using alternative data such as social media for credit scoring and real-time invoice financing through common supply chain platform.
He also talked about the standardized QR Code for e-payments, which has reached nearly 1 million merchants within six months after exiting from the Bank of Thailand’s Regulatory Sandbox. Last year, BOT permitted eight banks to offer QR code payment services through PromptPay system.
The PromptPay system itself is another important Fintech initiative in Thailand. PromptPay is an interbank mobile payments system and it was launched in January 2017. It enables mobile fund transfers, using only mobile number or Citizen ID number of the recipient. The system has facilitated electronic payments for over 39 million registered IDs in Thailand.
Dr Santiprabhob concluded, “To attain the overall improvement in productivity, immunity, and inclusivity, the Bank of Thailand is committed to supporting adoption of financial technology by financial institutions and promoting fintech innovation while ensuring that key risks can be contained.”